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As Filed with the Securities and Exchange Commission on October 8, 1997
Registration No. 333-6011
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 1
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA, FORMERLY
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(Exact Name of Registrant)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
116 Huntington Avenue, Boston, Massachusetts 02116
(617) 266-6008
(Address of Registrant's Principal Executive Offices and Telephone Number)
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(I.R.S. Employer Number) (Primary Standard Industrial Classification Code Number)
22-2265014 6312
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James D. Gallagher
Vice President, Secretary and
General Counsel
The Manufacturers Life Insurance Company of
North America
73 Tremont Street
Boston, Massachusetts 02108
(617) 266-6008
(Name and Address of Agent for Service)
Copy to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street N.W.
Washington DC 20007
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THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
CROSS REFERENCE TO ITEMS REQUIRED BY FORM S-1
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Form S-1 Item No. and Caption Prospectus Heading
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1. Forepart of the Registration Statement and Outside Cover Pages
Front Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of Cover Pages
Prospectus
3. Summary Information, Risk Factors and Ratio of Summary
Earnings to Fixed Charges
4. Use of Proceeds The Manufacturers Life Insurance Company
of North America
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution The Manufacturers Life Insurance Company of
North America - Distribution of the Contract
9. Description of Securities to be Registered Description of the Contract, Reinsurance and
Guarantees, The Manufacturers Life Insurance Company of
North America
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant The Manufacturers Life Insurance Company of
North America
12. Disclosure of Commission Position on Indemnification Not Applicable
for Securities Act Liabilities
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PART 1
INFORMATION REQUIRED IN A PROSPECTUS
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Annuity Service Office Mailing Address
116 Huntington Avenue Post Office Box 9230
Boston, Massachusetts 02116 Boston, Massachusetts
(617) 266-6008 02205-9230
(800) 344-1029
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THE MANUFACTURERS INSURANCE COMPANY OF NORTH AMERICA
DEFERRED FIXED ANNUITY
CONTRACT
NON-PARTICIPATING
This Prospectus describes Venture Market Value Adjusted Annuity
("Venture MVA"), a single payment deferred fixed annuity contract, offered by
The Manufacturers Life Insurance Company of North America, formerly, North
American Security Life Insurance Company, (the "Company"), a stock life
insurance company the ultimate parent of which is The Manufacturers Life
Insurance Company ("Manulife").
The Prospectus describes both an individual deferred annuity contract
and a participating interest in a group deferred annuity contract. Both are
designed and offered to provide retirement programs for eligible individuals and
retirement plans. Participation in a group contract will be separately accounted
for by the issuance of a certificate evidencing the owner's interest under the
contract. Ownership of an individual contract is evidenced by the issuance of an
individual annuity contract. The certificate and individual annuity contract are
hereafter referred to as the "contract."
The purchase payment is paid to the Company at its Annuity Service
Office. The minimum purchase payment for a contract is $5,000. The maximum
purchase payment accepted without prior approval of the Company is $500,000. The
purchase payment is allocated to the guarantee period designated by the contract
owner. Additional purchase payments for a contract will not be accepted.
Additional contracts may, however, be purchased at the then prevailing rates and
terms.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT
CONTAINS INFORMATION ABOUT THE FIXED ACCOUNT AND THE CONTRACT THAT A PROSPECTIVE
PURCHASER SHOULD KNOW BEFORE INVESTING.
BECAUSE OF THE MARKET VALUE ADJUSTMENT PROVISION OF THE CONTRACT, THE CONTRACT
OWNER BEARS THE INVESTMENT RISK THAT THE GUARANTEED INTEREST RATES OFFERED BY
THE COMPANY AT THE TIME OF WITHDRAWAL, TRANSFER OR THE START OF ANNUITY PAYMENTS
MAY BE HIGHER THAN THE GUARANTEED INTEREST RATE APPLIED TO THE CONTRACT WITH THE
RESULT THAT THE AMOUNT RECEIVED UPON WITHDRAWAL, TRANSFER OR ANNUITIZATION MAY
BE REDUCED BY THE MARKET VALUE ADJUSTMENT AND MAY BE LESS THAT THE ORIGINAL
INVESTMENT IN THE CONTRACT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT DEPOSITS WITH, OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR ANY AFFILIATE THEREOF, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY.
The date of the Prospectus is November 3, 1997
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AVAILABLE INFORMATION
Commencing with the offering of the securities described in this Prospectus, The
Manufacturers Life Insurance Company of North America became subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
(the "1934 Act") and in accordance therewith files reports and other information
with the Securities and Exchange Commission (the "Commission"). Such reports and
other information can be inspected and copied at the public reference facilities
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's Regional Offices located at 75 Park Place, New York, New
York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such materials also can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission which is
located at http://www.sec.gov.
A registration statement has been filed with the Commission under the Securities
Act of 1933, as amended, with respect to the contracts discussed in the
Prospectus. Not all the information set forth in the registration statement,
amendments and exhibits thereto has been included in this Prospectus. Statements
contained in this Prospectus concerning the content of the contracts and other
legal instruments are only summaries. For a complete statement of the terms of
these documents, reference should be made to the instruments filed with the
Commission. The Registration Statements and the exhibits thereto may be
inspected and copied, and copies can be obtained at the prescribed rates, in the
manner set forth in the preceding paragraph.
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TABLE OF CONTENTS
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SPECIAL TERMS ............................................................. 5
SUMMARY ................................................................... 8
DESCRIPTION OF THE CONTRACT ............................................... 10
ELIGIBLE GROUPS FOR GROUP ANNUITY CONTRACT ........................... 10
ACCUMULATION PROVISIONS .............................................. 10
Purchase Payments .................................................... 10
Guarantee Periods .................................................... 10
Transfers Among Guarantee Periods .................................... 11
Telephone Transactions ............................................... 11
Renewals ............................................................. 11
Withdrawals .......................................................... 11
Death Benefit Before Maturity Date ................................... 12
ANNUITY PROVISIONS ................................................... 13
General .............................................................. 13
Annuity Options ...................................................... 13
Death Benefit on or After Maturity Date .............................. 14
OTHER CONTRACT PROVISIONS ............................................ 14
Ten Day Right to Review .............................................. 14
Ownership ............................................................ 14
Beneficiary .......................................................... 15
Annuitant ............................................................ 15
Modification ......................................................... 15
Company Approval ..................................................... 15
Discontinuance of New Owners ......................................... 15
MARKET VALUE ADJUSTMENT .............................................. 16
CHARGES AND DEDUCTIONS ............................................... 16
Withdrawal Charge .................................................... 16
Reduction or Elimination of Withdrawal Charge ........................ 17
Taxes ................................................................ 17
Administration Fee ................................................... 18
REINSURANCE ............................................................... 18
THE MANUFACTURERS INSURANCE COMPANY OF NORTH AMERICA ...................... 18
Description of Business ................................................... 18
Management Discussion & Analysis .......................................... 19
Selected Financial Data ................................................... 26
Officers and Directors of the Company ..................................... 27
Executive Compensation .................................................... 31
Manufacturers Life Insurance Company Separate Account D ................... 33
Distribution of the Contract .............................................. 33
Legal Proceedings ......................................................... 33
Legal Matters ............................................................. 34
Independent Auditors ...................................................... 34
Notices and Reports to Contract Owners .................................... 34
Contract Owner Inquiries .................................................. 34
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FEDERAL TAX MATTERS ....................................................... 34
Introduction .............................................................. 34
Taxation of Annuities in General .......................................... 36
Qualified Retirement Plans ................................................ 38
Federal Income Tax Withholding ............................................ 40
GENERAL MATTERS ........................................................... 40
Restrictions Under the Texas Optional Retirement Program .................. 40
APPENDIX A - Examples of Calculation of Withdrawal Charge ................. 42
APPENDIX B - Market Value Adjustment Examples ............................. 43
APPENDIX C - State Premium Taxes .......................................... 45
FINANCIAL STATEMENTS OF THE COMPANY ....................................... 46
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SPECIAL TERMS
Annuitant Any individual person or persons whose life is
used to determine the duration of annuity payments
involving life contingencies. The Annuitant is as
designated on the contract or certificate
specifications page or in the application, unless
changed.
Annuity Option One of several alternative methods by which
payment of the proceeds may be made.
Annuity Service Office The service office of the company is P.O. Box
9230, Boston Massachusetts 02205-9230.
Beneficiary The person, persons, or entity to whom the death
benefit proceeds are payable following the death
of the owner, or in certain circumstances, an
annuitant.
Certificate For a group contract, the documents issued to each
owner which summarizes the rights and benefits of
the owner under the contract.
Company The Manufacturers Life Insurance Company of North
America.
Contingent The person, persons or entity who becomes the
Beneficiary beneficiary if the beneficiary is not alive.
Contract For an individual contract, the individual annuity
contract. For a group contract, the certificate
evidencing a participating interest in the group
annuity contract. Any reference in this prospectus
to "contract" includes the underlying group
annuity contract.
Contract For an individual contract, the anniversary of the
Anniversary contract date. For a group contract, the
anniversary of the date of issue of a certificate
under the contract.
Contract Date In the case of an individual annuity contract, the
date of issue of the contract as designated on the
contract specifications page. In the case of a
group annuity contract, the effective date of
participation under the group annuity contract as
designated in the certificate specifications page.
Contract Value The contract value is the sum of the net purchase
payment and accrued interest, less the sum of any
withdrawals and any administration fee, adjusted
for any transfer market value adjustment.
Contract Year The period of twelve consecutive months beginning
on the contract date, certificate date in the case
of a group contract, or any anniversary
thereafter.
Code The Internal Revenue Code of 1986, as amended.
Due Proof of Death Due Proof of Death is required upon the death of
the owner or annuitant, as applicable. One of the
following must be received at the Annuity Service
Office:
(a) A certified copy of a death
certificate;
(b) A certified copy of a decree of a court
of competent jurisdiction as to the
finding of death; or
(c) Any other proof satisfactory to the
Company.
Death benefits will be paid within 7 days of
receipt of due proof of death and all required
claim forms by the Company's Annuity Service
Office.
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Fixed Account The Manufacturers Life Insurance Company of North
America Separate Account D, formerly, NASL Fixed
Account, which is a separate account of the
Company.
Fixed Annuity An annuity option with payments which are
predetermined and guaranteed as to dollar amount.
General Account All of the assets of the Company other than assets
in separate accounts.
Group Holder In the case of a group annuity contract, the
person, persons or entity to whom the contract is
issued.
Gross Withdrawal Value The portion of the contract value specified by the
owner for a full or partial withdrawal. Such
amount is determined prior to the application of
any withdrawal charge, annual administration fee
and market value adjustment.
Initial Guarantee Period The period of time during which the initial
guaranteed interest rate is in effect.
Initial Guaranteed Interest Rate The compound annual rate used to determine the
interest earned on the net purchase payment during
the initial guarantee period.
Market Value Adjustment An adjustment to amounts that are withdrawn,
transferred or annuitized prior to the end of the
guarantee period. It may increase or decrease the
amount available for transfer, withdrawal or
annuitized.
Maturity Date The date on which annuity benefits commence. It is
the date specified on the contract specifications
page, unless changed.
Net Purchase Payment The purchase payment less the amount of premium
tax, if any, deducted from the payment.
Non-Qualified Certificates Certificates issued under non-qualified Contracts.
Non-Qualified Contracts Contracts which are not issued under Qualified
Plans.
Owner or In the case of an individual contract, the person,
Contract Owner persons or entity entitled to the ownership rights
under the contract. In the case of a group annuity
contract, the person, persons or entity named in a
certificate and entitled to all of the ownership
rights under the contract not expressly reserved
to the group holder. The owner is as designated on
the contract or certificate specifications page or
in the application, unless changed.
Payment or An amount paid by a contract owner to the Company
Purchase Payment as consideration for the benefits provided by the
contract.
Qualified Certificates Certificates issued under qualified contracts.
Qualified Contracts Contracts issued under Qualified Plans
Qualified Plans Retirement plans which receive favorable tax
treatment under section 401, 403, 408 or 457 of
the Code.
Renewal Amount The contract value at the end of the initial
guarantee period or at the end of a renewal
guarantee period.
Renewal Guarantee Period The period of time during which a renewal
guaranteed interest rate is in effect.
Renewal Guaranteed Interest Rate The compound annual rate used to determine the
interest earned on a renewal amount during a
renewal guarantee period. In no event shall this
rate be less than 3%.
Separate Account A segregated account of the Company that is not
commingled with the Company's general assets and
obligations.
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SUMMARY
DESCRIPTION OF THE CONTRACT
The Contract. The contract offered by this Prospectus is a single
purchase payment deferred fixed annuity contract. The contract provides for the
accumulation of the contract value and the payment of annuity benefits on a
fixed basis. The Prospectus describes participating interests in both group
deferred annuity contracts and individual deferred annuity contracts. For
information on eligible groups for the group deferred annuity contracts see
"ELIGIBLE GROUPS FOR GROUP ANNUITY CONTRACT."
Retirement Plans. The contract may be issued pursuant to either
non-qualified retirement plans or plans qualifying for special income tax
treatment under the Internal Revenue Code, such as individual retirement
accounts and annuities, pension and profit-sharing plans for corporations and
sole proprietorships/partnerships ("H.R. 10" and "Keogh" plans), tax-sheltered
annuities, and state and local government deferred compensation plans. (See
"QUALIFIED RETIREMENT PLANS") Those who are considering purchase of a contract
for use in connection with a qualified retirement plan should consider, in
evaluating the suitability of the contract, that the contract allows only a
single premium purchase payment in an amount of at least $5,000.
Purchase Payments. Purchase payments are paid to the Company at its
Annuity Service Office. The minimum purchase payment for a contract is $5,000.
The maximum purchase payment accepted without prior approval of the Company is
$500,000. The purchase payment is allocated to the guarantee period designated
by the contract owner. Additional purchase payments for a contract will not be
accepted. Additional contracts may, however, be purchased at the then prevailing
rates and terms.
Prior to the maturity date, the Company may, at its option, cancel a
contract following the second contract anniversary if both (i) the total
purchase payment made, less any withdrawals, is less than $2,000; and (ii) the
higher of the contract value or the amount available upon total withdrawal is
less than $2,000. The cancellation of contract privileges may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such states. (See "PURCHASE PAYMENTS")
Guarantee Periods. Currently, there are ten guarantee periods under the
contract: one year through ten years. The Company may offer additional guarantee
periods for any yearly period from one to twenty years. (See "INVESTMENT
OPTIONS")
Transfers Among Guarantee Periods. Before the maturity date, the
contract owner may transfer the entire contract value to a different guarantee
period at any time upon written notice to the Company or by telephone if the
contract owner authorizes the Company in writing to accept telephone transfer
requests. Amounts may only be transferred, however, once per contract year and
the entire amount of the account must be transferred. Amounts transferred will
be subject to a market value adjustment. (See "TRANSFERS AMONG INVESTMENT
OPTIONS")
Telephone Transactions. Contract owners are permitted to request
transfers or withdrawals by telephone. (See "TELEPHONE TRANSACTIONS")
Renewals. At the end of a guarantee period, the contract owner may
choose a renewal guarantee period from any of the then existing guarantee period
options, at the then current interest rates. (See "RENEWALS")
Withdrawals. Prior to the earlier of the maturity date or the death of
the contract owner, the owner may withdraw all or a portion of the contract
value. The amount withdrawn must be at least $300 or, if less, the entire
contract value. If a partial withdrawal plus any applicable withdrawal charge,
after giving effect to any market value adjustment would reduce the contract
value to less than $300, the Company will treat the partial withdrawal as a
total withdrawal of the contract value. A withdrawal charge and market value
adjustment may be imposed. (See "WITHDRAWALS") A withdrawal may be subject to a
penalty tax. (See "FEDERAL TAX MATTERS")
Death Benefits. The Company will pay the death benefit to the
beneficiary if any contract owner dies before the maturity date. The death
benefit is equal to the contract value. If there is a surviving contract owner,
that contract owner will be deemed to be the beneficiary. No death benefit is
payable on the death of any annuitant, except that if any contract owner is not
a natural person, the death of any annuitant will be treated as the
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death of an owner. The death benefit will be determined as of the date on which
written notice and proof of death and all required claim forms are received at
the Company's Annuity Service Office.
Annuity Payments. The Company offers a variety of fixed annuity
options. Periodic annuity payments will begin on the maturity date. The contract
owner may select the maturity date, frequency of payment and annuity option.
(See "ANNUITY PROVISIONS")
Ten Day Review. Within 10 days of receipt of a contract, the contract
owner may cancel the contract by returning it to the Company or its agent. (See
"TEN DAY RIGHT TO REVIEW")
Market Value Adjustment. Any amount withdrawn, transferred or
annuitized prior to the end of either the initial guarantee period or a renewal
guarantee period will be adjusted by the market value adjustment factor
described under "MARKET VALUE ADJUSTMENT."
Withdrawal Charge. If a withdrawal is made from the contract before the
maturity date, a withdrawal charge (contingent deferred sales charge) may be
assessed against amounts withdrawn during the first seven contract years. There
is never a withdrawal charge with respect to certain free withdrawal amounts
described below or after seven complete contract years. The amount of the
withdrawal charge and when it is assessed is discussed under "CHARGES AND
DEDUCTIONS - WITHDRAWAL CHARGE."
Tax Deferral. The status of the contract as an annuity generally allows
all earnings on the underlying investments to be tax-deferred until withdrawn or
until annuity payments begin. (See "FEDERAL TAX MATTERS"). This tax deferred
treatment may be beneficial to contract owners in building assets in a long-term
investment program.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
The Company is a stock life insurance company organized under the laws
of Delaware in 1979. The Company's principal office is located at 116 Huntington
Avenue, Boston, Massachusetts 02116. The ultimate parent of the Company is The
Manufacturers Life Insurance Company ("Manulife"), a Canadian mutual life
insurance company based in Toronto, Canada. Prior to January 1, 1996, the
Company was a wholly owned subsidiary of North American Life Assurance Company
("NAL"), a Canadian mutual life insurance company. On January 1, 1996 NAL and
Manulife merged with the combined company retaining the Manulife name.
Effective January 1, 1996, immediately following the merger of NAL and
Manulife, the Company experienced a corporate restructuring which resulted in
the formation of a newly organized holding corporation, NAWL Holding Co., Inc.
("NAWL"). NAWL holds all of the outstanding shares of the Company and Wood Logan
Associates, Inc. ("WLA"). Manulife owns all class A shares of NAWL, representing
85% of the voting shares of NAWL. Certain employees of WLA own all class B
shares, which represent the remaining 15% voting interest in NAWL.
The Company issues fixed and variable annuity and variable life
contracts. Amounts invested in the fixed portion of the contracts are allocated
either to the general account of the Company or in the case of the contract
described in this Prospectus, to a separate account of the Company. Amounts
invested in the variable portion of the contracts are allocated to the separate
accounts of the Company (excluding the Fixed Account). These separate account
assets are invested in shares of Manufacturers Investment Trust, formerly NASL
Series Trust, a no-load, open end management investment company organized as a
Massachusetts business trust.
An indemnity coinsurance agreement was entered into between the Company
and Peoples Security Life Insurance Company ("Peoples"), a subsidiary of the
Providian Corporation, to reinsure fixed annuity business written by the Company
for the product described in this prospectus. The indemnity aspects of the
agreement provide that the Company remains liable for the contractual
obligations whereas Peoples agrees to indemnify the Company for any contractual
claims incurred. The coinsurance aspects of the agreement require the Company to
transfer to Peoples an agreed upon percentage (currently, 100%) of all fixed
premiums received by the Company for fixed annuity contracts written for the
product described in this prospectus. Peoples reimburses the Company for the
same agreed upon percentage of claims and provides expense allowances to cover
commission and other costs associated with this fixed annuity business. Peoples
contractual liability runs solely to the Company, and no contract owner shall
have any right of action against Peoples. Peoples is responsible for investing
the assets and is
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at risk for any potential investment gains and losses. There is no recourse back
to the Company if investment losses are incurred. The above summary is qualified
in its entirety by the detailed information appearing elsewhere in this
Prospectus.
DESCRIPTION OF CONTRACT
ELIGIBLE GROUPS FOR GROUP ANNUITY CONTRACT
The group deferred annuity contract may be issued to fund plans
qualifying for special income tax treatment under the Internal Revenue Code,
such as individual retirement accounts and annuities, pension and profit-sharing
plans for corporations and sole proprietorships/partnerships ("H.R. 10" and
"Keogh" plans), tax-sheltered annuities, and state and local government deferred
compensation plans. Those who are considering purchase of a contract for use in
connection with a qualified retirement plan should consider, in evaluating the
suitability of the contract, that the contract allows only a single premium
purchase payment in an amount of at least $5,000. (See "QUALIFIED RETIREMENT
PLANS") The group deferred annuity contract is also designed so that it may be
used with non-qualified retirement plans, such as deferred compensation and
payroll savings plans and such other groups (trusteed or non-trusteed) as may be
eligible under applicable law. Group deferred annuity contracts have been issued
to the Security Life Trust, a trust established with United Missouri Bank, N.A.,
Kansas City, Missouri, as group holder for groups comprised of persons who have
brokerage accounts with brokers having selling agreements with Manufacturers
Securities Services, LLC, the successor to NASL Financial Services, Inc.
("MSS"), the principal underwriter of the contracts.
An eligible member of a group to which a contract has been issued may
become an owner under the contract by submitting a completed application, if
required by the Company, and a minimum purchase payment. A certificate
summarizing the rights and benefits of the owner under the contract will be
issued to an applicant acceptable to the Company. The Company reserves the right
to decline to issue a certificate to any person in its sole discretion. All
rights and privileges under the contract may be exercised by each owner as to
his or her interest unless expressly reserved to the group holder. However,
provisions of any plan in connection with which the contract was issued may
restrict an owner's ability to exercise such rights and privileges.
ACCUMULATION PROVISIONS
PURCHASE PAYMENTS
Purchase payments are paid to the Company at its Annuity Service
Office. The minimum purchase payment for a contract is $5,000. The maximum
purchase payment accepted without prior approval of the Company is $500,000. The
purchase payment is allocated to the guarantee period selected by the contract
owner. Additional purchase payments for a contract will not be accepted.
Additional contracts may, however, be purchased at the then prevailing rates and
terms.
Prior to the maturity date, the Company may, at its option, cancel a
contract following the second contract anniversary, if both (i) the total
purchase payment made, less any withdrawals, is less than $2,000; and (ii) the
higher of the contract value or the amount available upon total withdrawal is
less than $2,000. The cancellation of contract privileges may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such state. Upon cancellation the Company will pay the contract
owner the higher of the contract value and any annual administration fee or the
amount available upon total withdrawal. The amount paid will be treated as a
withdrawal for Federal tax purposes and thus may be subject to income tax and to
a 10% penalty tax. (See "FEDERAL TAX MATTERS")
GUARANTEE PERIODS
Currently, there are ten guarantee periods: one year through ten years.
The Company may offer additional guarantee periods for any yearly period from
one to twenty years. The contract provides for the accumulation of interest on
the purchase payment at guaranteed rates for the duration of the guarantee
period. From time to time, customers of certain broker-dealers may be offered
special initial guaranteed interest rates which are higher than the initial
guaranteed interest rate offered to the general public. In consideration of
these higher interest rates, commissions to these broker-dealers may be reduced.
The guaranteed interest rate on a renewal amount
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allocated or transferred to a renewal guarantee period is determined from
time-to-time by the Company in accordance with market conditions. Under certain
circumstances, the Company may offer a rate in excess of the renewal guaranteed
rate for the first year only of a renewal guarantee period. In no event will the
renewal guaranteed interest rate be less than 3%. The interest rate is
guaranteed for the duration of the guarantee period and may not be changed by
the Company.
For information on the reinsurance for the product described in this
prospectus see "REINSURANCE."
TRANSFERS AMONG GUARANTEE PERIODS
Before the maturity date the contract owner may transfer the entire
contract value to a different guarantee period at any time upon written notice
to the Company or by telephone if the contract owner authorizes the Company in
writing to accept telephone transfer requests. Amounts may only be transferred,
however, once per contract year and the entire contract value must be
transferred. Amounts transferred will be subject to a transfer market value
adjustment. The amount requested to be transferred will be multiplied by the
market value adjustment factor to determine the transferred amount. (See "MARKET
VALUE ADJUSTMENT"). The Company also reserves the right to modify or terminate
the transfer privilege at any time in accordance with applicable law.
TELEPHONE TRANSACTIONS
Contract owners are permitted to request transfers or withdrawals by
telephone. The Company will not be liable for following instructions
communicated by telephone that it reasonably believes to be genuine. To be
permitted to request transfers or withdrawals by telephone, a contract owner
must elect the option on an appropriate authorization form provided by the
Company. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and may only be liable for
any losses due to unauthorized or fraudulent instructions where it fails to
employ its procedures properly. Such procedures include the following: Upon
telephoning a request, contract owners will be asked to provide certain
identifying information. For the contract owner's and Company's protection, all
conversations with contract owners will be tape recorded. All telephone
transactions will be followed by a confirmation statement of the transaction.
RENEWALS
At the end of a guarantee period, the contract owner may choose a
renewal guarantee period from any of the then existing guarantee periods at the
then current interest rate, all without the imposition of any charge. The
contract owner may not select a guarantee period that would extend beyond the
maturity date. In the case of renewals within one year of the maturity date, the
only option available is to have interest accrued up to the maturity date at the
then current interest rate for one year guarantee periods.
If the contract owner does not specify the renewal guarantee period
desired, the Company will select the same guarantee period as has just expired,
so long as such period does not extend beyond the maturity date. In the event a
renewal would extend beyond the maturity date, the Company will select the
longest period that will not extend beyond such date, except in the case of a
renewal within one year of the maturity date in which case the Company will
credit interest up to the maturity date at the then current interest rate for
one year guarantee periods.
WITHDRAWALS
Prior to the earlier of the maturity date or the death of the contract
owner, the owner may withdraw all or a portion of the contract value upon
written request, complete with all necessary information, to the Company's
Annuity Service Office. For certain qualified contracts, exercise of the
withdrawal right may require the consent of the qualified plan participant's
spouse under the Internal Revenue Code and regulations promulgated by the
Treasury Department.
In the case of a total withdrawal, as of the date of receipt of the
request at its Annuity Service Office, the Company will cancel the contract and
pay the following amount:
C + [ (A - B - C) x D], where:
A=the gross withdrawal value reduced by an applicable annual administration fee;
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<PAGE> 14
B=the withdrawal charge;
C=the free withdrawal amount;
D=the market value adjustment factor.
(See "CHARGES AND DEDUCTIONS" and "MARKET VALUE ADJUSTMENT")
Partial withdrawals will use the formula specified above and the gross
withdrawal value to determine the amount payable. Partial withdrawals will be
subject to market value adjustments and possible withdrawal charges. The Company
will deduct the gross withdrawal value from the contract value. The gross
withdrawal value may not exceed the contract value.
The Company may defer the payment of a full or partial withdrawal for
not more than six months (or the period permitted by applicable state law if
shorter) from the date the Company receives the withdrawal request and the
contract. If payments are deferred thirty days or more, the amount deferred will
earn interest at a rate not less than 3% per year or at a rate determined by
applicable state law. The Company will not, however, defer payment for more than
thirty days for any withdrawal effective at the end of any guarantee period.
There is no limit on the frequency of partial withdrawals; however, the
amount withdrawn must be at least $300 or, if less, the entire contract value.
If a partial withdrawal plus any applicable withdrawal charge, after giving
effect to any market value adjustment would reduce the contract value to less
than $300, the Company will treat the partial withdrawal as a total withdrawal
of the contract value.
Withdrawals from the contract may be subject to income tax and a 10%
penalty tax. Withdrawals are permitted from contracts issued in connection with
Section 403(b) qualified plans only under limited circumstances. (See "FEDERAL
TAX MATTERS")
TELEPHONE REDEMPTIONS. The contract owner may request the option to
withdraw a portion of the contract value by telephone by completing the
application described under "Telephone Transactions" above. The Company reserves
the right to impose maximum withdrawal amounts and procedural requirements
regarding this privilege. For additional information on Telephone Redemptions
see "Telephone Transactions" above.
DEATH BENEFIT BEFORE MATURITY DATE
In General. The following discussion applies principally to contracts
that are not issued in connection with qualified plans, i.e., a "non-qualified
contract." The requirements of the tax law applicable to qualified plans, and
the tax treatment of amounts held and distributed under such plans, are quite
complex. Accordingly, a prospective purchaser of the contract to be used in
connection with a qualified plan should seek competent legal and tax advice
regarding the suitability of the contract for the situation involved and the
requirements governing the distribution of benefits, including death benefits,
from a contract used in the plan.
Determination of Death Benefit. The determination of the death benefit
will be made on the date written notice and proof of death, as well as all
required claims forms, are received at the Company's Annuity Service Office. No
person is entitled to the death benefit until this time.
Amount and Payment of Death Benefit. The Company will pay a death
benefit equal to the contract value to the beneficiary if any contract owner
dies before the maturity date. If there is a surviving contract owner, that
contract owner will be deemed to be the beneficiary. No death benefit is payable
on the death of any annuitant, except that if any contract owner is not a
natural person, the death of any annuitant will be treated as the death of an
owner. On the death of the last surviving annuitant, the contract owner, if a
natural person, will become the annuitant unless the contract owner designates
another person as the annuitant.
The death benefit may be taken in the form of a lump sum immediately.
If not taken immediately, the contract will continue subject to the following:
(1) The beneficiary will become the contract owner. (2) No additional purchase
payments may be made. (3) If the beneficiary is not the deceased owner's spouse,
distribution of the contract owner's entire interest in the contract must be
made within five years of the owner's death, or alternatively, distribution may
be made as an annuity, under one of the annuity options described below, which
begins within one year of the owner's death and is payable over the life of the
beneficiary or over a period not extending beyond the life expectancy of the
beneficiary. If the beneficiary dies before distributions described in
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<PAGE> 15
"(3)" above are completed, the entire remaining contract value must be
distributed in a lump sum immediately. (4) If the owner's spouse is the
beneficiary, the spouse continues the contract as the new owner. In such a case,
the distribution rules described in "(3)" applicable when a contract owner dies
will apply when the spouse, as the owner, dies.
If any annuitant is changed and any contract owner is not a natural
person, the entire interest in the contract must be distributed to the contract
owner within five years.
Death benefits will be paid within seven days of the date the amount of
the death benefit is determined, as described above, subject to postponement
under the same circumstances that payment of withdrawals may be postponed. (See
"WITHDRAWALS")
ANNUITY PROVISIONS
GENERAL
The proceeds of the contract payable on death, withdrawal or the
contract maturity date may be applied to the annuity options described below,
subject to the distribution of death benefit provisions. (See "DEATH BENEFIT
BEFORE MATURITY DATE")
Generally, annuity benefits under the contract will begin on the
maturity date. The maturity date is the date specified on the contract
specifications page, unless changed. If no date is specified, the maturity date
is the maximum maturity date described below. The maximum maturity date is the
first day of the month following the later of the 85th birthday of the annuitant
or the tenth contract anniversary. The contract owner may specify a different
maturity date at any time by written request at least one month before both the
previously specified and the new maturity date. The new maturity date may not be
later than the maximum maturity date unless the Company consents. Maturity dates
which occur at advanced ages, e.g., past age 85, may in some circumstances have
adverse income tax consequences. (See "FEDERAL TAX MATTERS") Distributions from
qualified contracts may be required before the maturity date.
The contract owner may select the frequency of annuity payments.
However, if the contract value at the maturity date is such that a monthly
payment would be less than $20, the Company may pay the higher of contract value
and any annual administration fee or the amount available upon total withdrawal
in one lump sum to the annuitant on the maturity date.
ANNUITY OPTIONS
Annuity benefits are available under the contract on a fixed basis.
Upon purchase of the contract, and on or before the maturity date, the contract
owner may select one or more of the annuity options described below or choose an
alternate form of settlement acceptable to the Company. If an annuity option is
not selected, the Company will provide as a default option annuity payments to
be made for a period certain of 10 years and continuing thereafter during the
lifetime of the annuitant. Treasury Department regulations may preclude the
availability of certain annuity options in connection with certain qualified
contracts.
The following annuity options are guaranteed in the contract.
Option 1(a): Non-Refund Life Annuity - An annuity with payments during
the lifetime of the annuitant. No payments are due after the death of
the annuitant. Since there is no guarantee that any minimum number of
payments will be made, an annuitant may receive only one payment if the
annuitant dies prior to the date the second payment is due.
Option 1(b): Life Annuity with Payments Guaranteed for 10 Years - An
annuity with payments guaranteed for 10 years and continuing thereafter
during the lifetime of the annuitant. Since payments are guaranteed for
10 years, annuity payments will be made to the end of such period if
the annuitant dies prior to the end of the tenth year.
Option 2(a): Joint & Survivor Non-Refund Life Annuity - An annuity with
payments during the lifetimes of the annuitant and a designated
co-annuitant. No payments are due after the death of the last survivor
of
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<PAGE> 16
the annuitant and co-annuitant. Since there is no guarantee that any
minimum number of payments will be made, an annuitant or co-annuitant
may receive only one payment if the annuitant and co-annuitant die
prior to the date the second payment is due.
Option 2(b): Joint & Survivor Life Annuity with Payments Guaranteed for
10 Years - An annuity with payments guaranteed for 10 years and
continuing thereafter during the lifetimes of the annuitant and a
designated co-annuitant. Since payments are guaranteed for 10 years,
annuity payments will be made to the end of such period if both the
annuitant and the co-annuitant die prior to the end of the tenth year.
In addition to the foregoing annuity options which the Company is
contractually obligated to offer at all times, the Company currently offers the
following annuity options. The Company may cease offering the following annuity
options at any time and may offer other annuity options in the future.
Option 3: Life annuity with Payments Guaranteed for 5, 15 or 20 Years -
An Annuity with payments guaranteed for 5, 15 or 20 years and
continuing thereafter during the lifetime of the annuitant. Since
payments are guaranteed for the specific number of years, annuity
payments will be made to the end of the last year of the 5, 15 or 20
year period.
Option 4: Joint & Two-Thirds Survivor Non-Refund Life Annuity - An
annuity with full payments during the joint lifetime of the annuitant
and a designated co-annuitant and two-thirds payments during the
lifetime of the survivor. Since there is no guarantee that any minimum
number of payments will be made, an annuitant or co-annuitant may
receive only one payment if the annuitant and co-annuitant die prior to
the date the second payment is due.
Option 5: Period Certain Only Annuity for 5, 10, 15 or 20 years - An
annuity with payments for a 5, 10, 15 or 20 year period and no payments
thereafter.
DEATH BENEFIT ON OR AFTER MATURITY DATE
If annuity payments have been selected based on an annuity option
providing for payments for a guaranteed period, and the annuitant dies on or
after the maturity date, the Company will make the remaining guaranteed payments
to the beneficiary. Any remaining payments will be made as rapidly as under the
method of distribution being used as of the date of the annuitant's death. If no
beneficiary is living, the Company will commute any unpaid guaranteed payments
to a single sum (on the basis of the interest rate used in determining the
payments) and pay that single sum to the estate of the last to die of the
annuitant and the beneficiary.
OTHER CONTRACT PROVISIONS
TEN DAY RIGHT TO REVIEW
The contract owner may cancel the contract by returning it to the
Service Office or agent at any time within 10 days after receipt of the
contract. Within 7 days of receipt of the contract by the Company, the Company
will refund the payment made for the contract.
No withdrawal charge is imposed upon return of the contract within the
ten day right to review period. The ten day right to review may vary in certain
states in order to comply with the requirements of insurance laws and
regulations in such states. When the certificate is issued as an individual
retirement annuity under Internal Revenue Code section 408, during the first 7
days of the 10 day period, the Company will return the contract value if this is
greater than the amount otherwise payable.
OWNERSHIP
In the case of an individual annuity contract, the contract owner is
the person entitled to exercise all rights under the contract. In the case of a
group annuity contract, the contract is owned by the group holder; however, all
contract rights and privileges not expressly reserved to the group holder may be
exercised by each owner as to his or her interest as specified in his or her
certificate. Prior to the maturity date, the contract owner is the person
designated in the contract specifications page or as subsequently named. On and
after the maturity date, the annuitant is the contract owner. If amounts become
payable to any beneficiary under the contract, the beneficiary is the contract
owner.
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<PAGE> 17
In the case of non-qualified contracts, ownership of the contract may
be changed or the contract may be collaterally assigned at any time prior to the
maturity date, subject to the rights of any irrevocable beneficiary. Assigning a
contract, or changing the ownership of a contract, may be treated as a
distribution of the contract value for Federal tax purposes. (See "FEDERAL TAX
MATTERS")
Any change of ownership or assignment must be made in writing. Any
change must be approved by the Company. Any assignment and any change, if
approved, will be effective as of the date the Company receives the request at
its Annuity Service Office. The Company assumes no liability for any payments
made or actions taken before a change is approved or an assignment is accepted
or responsibility for the validity or sufficiency of any assignment. An absolute
assignment will revoke the interest of any revocable beneficiary.
In the case of qualified contracts, ownership of the contract generally
may not be transferred except by the trustee of an exempt employees' trust which
is part of a retirement plan qualified under Section 401 of the Internal Revenue
Code or as otherwise permitted by applicable IRS regulations. Subject to the
foregoing, a qualified contract may not be sold, assigned, transferred,
discounted or pledged as collateral for a loan or as security for the
performance of an obligation or for any other purpose to any person other than
the Company.
BENEFICIARY
The beneficiary is the person, persons or entity designated on the
contract specifications page or as subsequently named. However, if there is a
surviving contract owner, that person will be treated as the beneficiary. The
beneficiary may be changed subject to the rights of any irrevocable beneficiary.
Any change must be made in writing, approved by the Company and if approved,
will be effective as of the date on which written. The Company assumes no
liability for any payments made or actions taken before the change is approved.
If no beneficiary is living, the contingent beneficiary will be the beneficiary.
The interest of any beneficiary is subject to that of any assignee. If no
beneficiary or contingent beneficiary is living, the beneficiary is the estate
of the deceased contract owner. In the case of certain qualified contracts,
regulations promulgated by the Treasury Department prescribe certain limitations
on the designation of a beneficiary.
ANNUITANT
The annuitant is any natural person or persons whose life is used to
determine the duration of annuity payments involving life contingencies. If the
contract owner names more than one person as an "annuitant," the second person
named shall be referred to as "co-annuitant." The annuitant is as designated on
the contract specifications page or in the application, unless changed.
On the death of the annuitant, the co-annuitant, if living, becomes the
annuitant. If there is no living co-annuitant, the owner becomes the annuitant.
In the case of certain qualified contracts, there are limitations on the ability
to designate and change the annuitant and the co-annuitant.
MODIFICATION
The Company will not change or modify the contract without the owner's
or group holder's consent, as applicable, except to the extent necessary to
conform to any applicable law or regulation or any ruling issued by a government
agency. However, on 60 days notice to the group holder, the Company may change
the withdrawal charges, administration fees, free withdrawal percentage, annuity
purchase rate and the market value adjustment as to any certificates issued
after the effective date of the modification. The provisions of the contract
shall be interpreted so as to comply with the requirements of Section 72(s) of
the Code.
COMPANY APPROVAL
The Company reserves the right to accept or reject a contract
application at its sole discretion.
DISCONTINUANCE OF NEW OWNERS
In the case of a group annuity contract, on thirty days notice to the
group holder, the company may limit or discontinue acceptance of new
applications and the issuance of new certificates under a contract.
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<PAGE> 18
MARKET VALUE ADJUSTMENT
Any amount withdrawn, transferred or annuitized prior to the end of
either the initial guarantee period or a renewal guarantee period will be
adjusted by the market value adjustment factor described below.
The market value adjustment factor is determined by the following
formula: ((1+i)/(1+j))n/12 where:
i - The initial guaranteed interest rate or renewal guaranteed interest
rate currently being earned on the contract.
j - The guaranteed interest rate available, on the date the request is
processed by the Company, for a guarantee period with the same length
as the period remaining in the initial guarantee period or renewal
guarantee period. If the guarantee period of this length is not
available, the guarantee period with the next highest duration which is
maintained by the Company will be chosen.
n - The number of complete months remaining to the end of the initial
guarantee period or renewal guarantee period.
There will be no market value adjustment in the following situations:
(a) death of the contract owner; (b) amounts withdrawn within one month prior to
the end of the guarantee period; and (c) amounts withdrawn in any contract year
that do not exceed (i) 10% of total purchase payments less (ii) any prior
partial withdrawals in that year.
The market value adjustment reflects the relationship between the
initial guaranteed interest rate or the renewal guaranteed interest rate
applicable to the contract and the then current available guaranteed interest
rate. Generally, if the initial guaranteed interest rate or the renewal
guaranteed interest rate is lower than the then current available guaranteed
interest rate, then the effect of the market value adjustment will be to reduce
the amount withdrawn, transferred or annuitized. Similarly, if the initial
guaranteed interest rate or the renewal guaranteed interest rate is higher than
the then current available guaranteed interest rate, then the effect of the
market value adjustment will be to increase the amount withdrawn, transferred or
annuitized. The greater the difference in these interest rates the greater the
effect of the market value adjustment.
The market value adjustment is also affected by the amount of time
remaining in the guarantee period. Generally, the longer the time remaining in
the guarantee period, the greater the effect of the market value adjustment on
the amount withdrawn, transferred or annuitized. This is because the longer the
time remaining in the guarantee period, the higher the compounding factor `n' in
the market value adjustment factor.
The cumulative effect of the market value adjustment and withdrawal
charges could result in a contract owner receiving total withdrawal proceeds of
less than the contract owner's investment in the contract.
BECAUSE OF THE MARKET VALUE ADJUSTMENT PROVISION OF THE CONTRACT, THE
CONTRACT OWNER BEARS THE INVESTMENT RISK THAT THE CURRENT AVAILABLE GUARANTEED
INTEREST RATE OFFERED BY THE COMPANY AT THE TIME OF WITHDRAWAL, TRANSFER OR
ANNUITIZATION MAY BE HIGHER THAN THE INITIAL OR RENEWAL GUARANTEE INTEREST RATE
APPLICABLE TO THE CONTRACT WITH THE RESULT THAT THE AMOUNT THE CONTRACT OWNER
RECEIVES UPON A WITHDRAWAL, TRANSFER OR ANNUITIZATION MAY BE SUBSTANTIALLY
REDUCED.
For more information on the market value adjustment, including examples
of its calculation, see Appendix B.
CHARGES AND DEDUCTIONS
WITHDRAWAL CHARGE
If a withdrawal is made from the contract before the maturity date, a
withdrawal charge (contingent deferred sales charge) may be assessed against
amounts withdrawn during the first seven contract years. There is
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never a withdrawal charge with respect to certain free withdrawal amounts
described below or after seven complete contract years. The amount of the
withdrawal charge and when it is assessed is discussed below:
1. In any contract year, the free withdrawal amount for that year is
the excess of (i) over (ii), where (i) is 10% of the purchase payment and (ii)
is all prior partial withdrawals in that contract year. Withdrawals allocated to
the free withdrawal amount may be withdrawn without the imposition of a
withdrawal charge.
2. If a withdrawal is made at the end of the initial guarantee period,
no withdrawal charge will be applied provided such withdrawal occurs on or after
the end of the third contract year. If a withdrawal is made at the end of any
other guarantee period, no withdrawal charge will be applied provided such
withdrawal occurs on or after the end of the fifth contract year. A request for
withdrawal at the end of a guarantee period must be received in writing during
the 30 days period preceding the end of that guarantee period.
3. The amount of the withdrawal charge is calculated by multiplying the
gross withdrawal value, less any administration fee and free withdrawal amount
by the applicable withdrawal charge percentage obtained from the table below.
<TABLE>
<CAPTION>
NUMBER OF COMPLETED WITHDRAWAL CHARGE
CONTRACT YEARS PERCENTAGE
-----------------------------------------------------------------
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
</TABLE>
4. There is generally no withdrawal charge on distributions made as a
result of the death of the contract owner or, if applicable, the annuitant, (see
"Death Benefit Before Maturity Date - Amount and Payment of Death Benefit").
The amount collected from the withdrawal charge will be used to
reimburse the Company for the compensation paid to cover selling concessions to
broker-dealers, preparation of sales literature and other expenses related to
sales activity.
For examples of calculation of the withdrawal charge, see Appendix A.
Withdrawals may be subject to a market value adjustment in addition to the
withdrawal charge described above. (See "MARKET VALUE ADJUSTMENT")
REDUCTION OR ELIMINATION OF WITHDRAWAL CHARGES
The amount of the withdrawal charge on a contract or the period to
which it applies may from time to time be reduced or eliminated for sales of the
contracts to certain individuals or groups of individuals in such a manner that
results in savings of sales expenses. The Company will consider such factors as
(i) the size and type of group, (ii) the amount of the single premium and/or
(iii) other transactions where sales expenses are reduced, when considering
whether to reduce or eliminate the sales charge or the period to which it
applies.
TAXES
The Company reserves the right to charge, or provide for, certain taxes
against purchase payments, contract values, death benefits or annuity payments.
Such taxes may include premium taxes or other taxes levied by any government
entity which the Company determines to have resulted from the (i) establishment
or maintenance of the Fixed Account, (ii) receipt by the Company of purchase
payments, (iii) issuance of the contracts, (iv) commencement or continuance of
annuity payments under the contracts or (v) death of the owner or annuitant. In
addition, the Company will withhold taxes to the extent required by applicable
law.
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Except for residents in South Dakota, premium taxes will be deducted
from the contract value used to provide for annuity payments unless required
otherwise by applicable law. The amount deducted will depend on the premium tax
assessed in the applicable state. State premium taxes currently range from 0% to
3.5% depending on the jurisdiction and the tax status of the contract and are
subject to change by the legislature or other authority. (See "APPENDIX B: STATE
PREMIUM TAXES") FOR RESIDENTS OF SOUTH DAKOTA, THE FOLLOWING PREMIUM TAX
ASSESSMENT WILL APPLY: A premium tax will be assessed against all non-qualified
purchase payments received from contract owners who are residents of South
Dakota. The rate of tax is 1.25%. The state premium tax will be collected upon
payment of any withdrawal benefits, upon any annuitization or payment of death
benefits. In the state of South Dakota, purchase payments received in connection
with the funding of a qualified plan are exempt from state premium tax.
ADMINISTRATION FEE
To compensate the Company for assuming certain administrative expenses,
the Company reserves the right to charge an annual administration fee. Prior to
the maturity date, the administration fee is deducted on the last day of each
contract year. If the contract is surrendered for its contract value on any date
other than the last day of any contract year, the Company will deduct the full
amount of the administration fee from the amount paid. Currently, no fee is
being assessed.
REINSURANCE
An indemnity coinsurance agreement was entered into between the Company
and Peoples Security Life Insurance Company ("Peoples"), a subsidiary of the
Providian Corporation, to reinsure fixed annuity business written by the Company
for the product described in this prospectus.
The indemnity aspects of the agreement provide that the Company remains
liable for the contractual obligations whereas Peoples agrees to indemnify the
Company for any contractual claims incurred. The coinsurance aspects of the
agreement require the Company to transfer to Peoples an agreed upon percentage
(currently, 100%) of assets backing the fixed annuity premiums received by the
Company for fixed annuity contracts. Peoples reimburses the Company for a
percentage of claims and provides expense allowances to cover commission and
other costs associated with this fixed annuity business. Peoples contractual
liability runs solely to the Company, and no contract owner shall have any right
of action against Peoples.
Peoples is responsible for investing the fixed annuity premiums
received and is at risk for any potential investment gains and losses. Under
this agreement, the Company will continue to administer the fixed annuity
business for which it will earn an expense allowance. The Company has set up a
reserve to recognize that expense allowances received from Providian under this
indemnity coinsurance agreement do not fully reimburse the Company for overhead
expenses allocated to this fixed annuity line of business (See Note F to the
Company's financial statements).
Peoples is a wholly-owned subsidiary of Louisville, Kentucky based Providian
Corporation, a diversified financial services corporation.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
DESCRIPTION OF BUSINESS
ORGANIZATION AND HISTORY
The Company is a stock life insurance company organized under the laws
of Delaware in 1979. The Company's principal office is located at 116 Huntington
Avenue, Boston, Massachusetts 02116. The ultimate parent of the Company is The
Manufacturers Life Insurance Company ("Manulife"), a Canadian mutual life
insurance company based in Toronto, Canada. Prior to January 1, 1996, the
Company was a wholly owned subsidiary of North American Life Assurance Company
("NAL"), a Canadian mutual life insurance company. On January 1, 1996 NAL and
Manulife merged with the combined company retaining the Manulife name.
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<PAGE> 21
Effective January 1, 1996, immediately following the merger of NAL and
Manulife, the Company experienced a corporate restructuring which resulted in
the formation of a newly organized holding corporation, NAWL Holding Co., Inc.
("NAWL"). NAWL holds all of the outstanding shares of the Company and Wood Logan
Associates, Inc. ("WLA"). Manulife owns all class A shares of NAWL, representing
85% of the voting shares of NAWL. Certain employees of WLA own all class B
shares, which represent the remaining 15% voting interest in NAWL.
On June 19, 1992, the Company formed The Manufacturers Life Insurance
Company of New York, formerly, First North American Life Assurance Company
("Manulife New York"). Subsequently, on July 22, 1992, Manulife New York was
granted a license by the New York State Insurance Department. Manulife New York
issues fixed and variable annuity contracts in the State of New York.
MSS, a wholly-owned subsidiary of the Company, acts as principal
underwriter to the contracts issued by the Company and Manulife New York. MSS
has entered into a promotional agent agreement with WLA to act as the
non-exclusive agent for the promotion of the Company's insurance contract sales.
(See "Distributor" below).
PRODUCT LINES
The Company issues fixed and variable annuities and variable life
contracts. Premiums received during 1996 totaled $1,049.1 million, gross of
reinsurance of $21.8 million, and included $7.0 million from variable annuity
contracts, $1009.9 million from combination fixed and variable annuity contracts
and $10.4 million from variable life contracts. Amounts invested in the fixed
portion of the Company's insurance contracts are allocated to the general
account of the Company or in the case of the contract described in this
prospectus, to a non-unitized separate account of the Company. Amounts invested
in the variable portion of the contracts are allocated to separate accounts of
the Company. The separate account assets (other than the separate account
described in this prospectus) are invested in shares of Manufacturers Investment
Trust, a no-load, open end management investment company organized as a
Massachusetts business trust.
As of December 31, 1996, the Company was licensed to sell fixed and
variable annuities insurance in all states except New Hampshire, New York, Rhode
Island and Vermont and was licensed to sell variable life insurance in all
states except New Hampshire, New York, North Carolina and Vermont.
PROPERTY AND OFFICE LOCATION
The Company's offices are located at 116 Huntington Avenue, Boston,
Massachusetts where the Company leases office space. The Company owns no real
property which is used for business purposes.
MANAGEMENT DISCUSSION & ANALYSIS
OVERVIEW
The Company issues fixed and variable annuity contracts and variable
life insurance. Amounts invested in variable contracts are allocated to separate
accounts of the Company. The assets of the separate accounts are invested in
shares of the Manufacturers Investment Trust, a no-load, open-end management
investment company organized as a Massachusetts business trust. Amounts invested
in the fixed portion of the contracts are subject to an indemnity coinsurance
agreement entered into between the Company and Peoples Security Life Insurance
Company ("Peoples") effective June 30, 1995. All sales and marketing support for
the annuity and life business is provided by WLA. Annuity and variable life
products are primarily sold though major wirehouses, regional broker dealers,
financial planners and banks.
The Company's primary sources of earnings are separate account fees
earned on variable contractholders' account balances and advisory fees earned on
separate account assets. Hence, a key factor in the Company's profitability is
sustained growth in the underlying assets through market performance coupled
with the ability to acquire and retain annuity and variable life deposits.
Although strong sales position the Company for future growth in surplus,
initially under statutory accounting there is a loss from operations due to the
expensing of
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acquisition costs (principally commission costs) in excess of the expense
allowances provided in the reserve basis. Whenever a company experiences rapid
growth relative to the total business inforce, as the Company has since 1992,
the first year losses on new business will generally exceed the profits
generated on the inforce business. This result is due to the conservative nature
of statutory accounting. Eventually, as the profits on the inforce block of
business become greater than the cost of writing new business, profits will
emerge.
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BASIS OF PRESENTATION
Financial results have been prepared on the basis of statutory
accounting practices which until December 31, 1995, were considered by the
insurance industry to be in accordance with generally accepted accounting
principles (GAAP) for mutual life insurance companies and their wholly-owned
subsidiaries. Commencing January 1, 1996, financial statements prepared on the
basis of statutory accounting practices will no longer be considered in
accordance with GAAP. A description of the accounting policies can be found in
Note B to the December 31, 1996 audited financial statements.
RESULTS OF OPERATIONS
JUNE 30, 1997 COMPARED TO JUNE 30, 1996
Net gain was $5.9 million in the second quarter of 1997 compared to a
loss of $5.5 million in the second quarter of 1996. Included in the prior years
net loss was $1.8 million of realized capital losses on the disposition of real
estate. For the six months ended June 30, 1997 net income was $1.2 million
versus a loss of $4.7 million in 1996. Included in year to date results for 1997
was $2.1 million of realized capital losses. Included in the year to date
results in 1996 was $0.2 million of realized capital gains. Strong market
performance in 1997 has resulted in an increase in total annuity deposits and
more favorable asset based fee income. Total annuity deposits, increased 37.6%
in the second quarter from $293.9 million to $404.5 million, primarily as a
result of the Company's strategic change in its separate account investment
platform. Favorable annuity deposits coupled with the current strong equity
market performance have resulted in higher asset based fees which have offset
the negative strain of writing new business.
1996 COMPARED TO 1995
The Company incurred a gain of $3.1 million in 1996 versus a loss of
$7.3 million in 1995. The gain in 1996 coincides with the level sales over the
past few years as profits from the inforce business begin to exceed the initial
strain caused by writing new business. Also contributing to the gain was
enhanced fee income earned on separate account assets. Total mortality and
expense fee income earned on separate account assets increased by $23 million in
1996. Total annuity deposits increased from $991.6 million in 1995 to $1,027.4
million in 1996. Although annuity deposits were relatively flat, separate
account assets continued to grow with an increase of $1,544.5 million, or 31%
from $4,914.7 million in 1995 to $6,459.2 million in 1996. This growth resulted
from the continued strong equity market performance, as well as $188 million of
transfers from the Company's fixed account options. Separate account benefits
also increased by $112 million, reflecting the overall increase in separate
account assets and maturing of the inforce business.
1995 COMPARED TO 1994
The Company incurred a net loss from operations of $7.3 million versus
a loss of $30.4 million in 1994. Although there was a significant improvement
relative to 1994 results, specific events occurred in 1995 that resulted in the
net loss recorded.
Annuity deposits decreased from $1,140.0 million to $991.6 million in
1994 and 1995, respectively. The reduction in annuity deposits was primarily the
result of below market investment results within the Manulife Investment Trust,
the underlying mutual fund for the annuity product, and investor concern over
the downgrade in the rating received from A. M. Best of our previous parent
company and the cession of fixed annuity deposits for the second half of 1995.
Annuity benefits increased from $206.7 million to $269.7 million in 1994 and
1995, respectively which was expected given the higher and more mature business
in force. Both the growth in annuity deposits and benefits are offset by the
change in separate account liabilities of $415.6 million in 1995 and 732.8
million in 1994. With the growth in separate account assets, due to net deposits
and investment performance the Company recognized an increase in mortality and
expense fees of approximately $10.9 million in 1995 versus 1994. Investment
performance within the Manufacturers Investment Trust improved significantly in
1995 versus 1994. This resulted in an increase in potential surrender charges
available therefore reducing statutory reserves under the Commissioner Annuity
Reserve Valuation Method. This reserve reduction improved statutory earnings for
1995.
21
<PAGE> 24
The loss of $7.3 million recognized in 1995 did reflect the
establishment of additional reserves of $19 million required by the NAIC under
Guideline GGG. This regulation clarified how the Commissioner's Annuity Reserve
Valuation Method ("CARVM") is to be applied with the result that reserves must
be sufficient to protect the Company against the worst possible combination of
events as part of its reserve adequacy testing.
Under the coinsurance agreement with Peoples, the Company expensed an
initial consideration of $727.5 million which resulted in a net decrease in
reserves expenses of $621.5 million and an increase in surplus of approximately
$10.0 million, of which $7.5 million had a positive effect on income in 1995.
Effective December 31, 1994 the Company recaptured its reinsurance with its
parent, NAL, by paying a recapture fee which resulted in a negative effect on
income of $6.5 million.
Commission costs decreased from $82.0 million to $73.6 million in 1994
and 1995, respectively directly due to the decrease in annuity deposits. Other
expenses, including general expenses and interest increased from $23.9 million
to $31.9 million in 1994 and 1995, respectively as a result of incurring
additional debt to finance acquisition costs and added personnel and technology
related costs to support the larger inforce block of annuity business.
Additionally, an increase in net investment income earned on general
account assets and a decrease in realized capital losses had a $9.8 million
positive impact on earnings in 1995.
FINANCIAL POSITION
Assets and Liabilities
JUNE 30, 1997 COMPARED TO DECEMBER 31, 1996
Total assets increased from $6,517.8 million at December 31, 1996 to
$7,756.1 million at June 30, 1997 an increase of $1.2 billion. Separate account
assets of $7,695.5 million represent 99.2% of total assets, or $7,695.5 million
as the Company continues to focus on its variable option insurance products.
DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Total assets increased from $4,962.5 million at December 31, 1995 to
$6,517.8 million at December 31, 1996 an increase of $1,555.3 million or 31%.
Virtually all ($1,544.6 million) of the increase was in the Company's separate
account assets, since all general account business has been reinsured, except
for $2.4 million of the fixed account of a new variable life product. There was
a comparable increase in separate account liabilities.
DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
At December 31, 1995 total assets were $4,962.5 million, an increase of
$722.3 million or 17.0% from 1994. Total liabilities at December 31, 1995 were
$4,912.3 million an increase of $731.5 million over 1994. Separate account
assets and liabilities increased by $1,253.5 million from 1994 directly due to
the increase in sales and positive investment performance. In 1995, the Company
entered into an indemnity coinsurance agreement with Peoples which transferred
all assets backing its fixed annuity obligations to the reinsurer. As a result
of this agreement, general account assets declined from $578.9 million at
December 31, 1994 to $47.8 million at December 31, 1995.
Capital and Surplus
JUNE 30, 1997 COMPARED TO DECEMBER 31, 1996
Total capital and surplus increased from $69.6 million at December 31,
1996 to $70.7 million at June 30, 1997, an increase of $1.1 million principally
due to the net income from operations.
22
<PAGE> 25
DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Total capital and surplus increased by $19.4 million in 1996, due to
the receipt of $18 million of paid-in capital and the gain from operations of
$3.1 million. Offsetting these increases were net changes in surplus due to
reinsurance ($3.3 million decrease) and non-admitted assets ($1.6 million
increase).
DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
Total capital and surplus at December 31, 1995 was $50.2 million, a
decrease of $9.3 million from December 31, 1994. The primary reason for the
change in surplus was due to the loss from operations of $7.3 million. Other
surplus adjustments which netted to a negative surplus affect of $2.0 million
included: allowance for reinsurance ceded of $3.0 million offset by a combined
net change in non-admitted assets, net unrealized capital gains(losses) and
valuation reserve of $1.0 million.
LIQUIDITY AND CAPITAL RESOURCES
The growth of the variable annuity market, particularly the substantial
increase in the Company's sales since 1993, has resulted in the Company needing
to obtain cash financing to support this growth. This is driven by the fact that
the Company must invest 100% of the variable option premiums in the separate
accounts while paying commissions on that block of business. Prior to 1995, the
Company used capital and general account assets to fund commissions. However
since 1995, under the Peoples fixed account reinsurance agreement, the Company
settles all general account obligations on a timely basis with Peoples.
Therefore, substantially all commission costs are financed through borrowing and
internally generated cash flows.
Since the commissions paid on separate account business exceed the
separate account surplus, the Company obtained external financing in 1994 by
entering into a $150 million revolving credit and term loan agreement (the
"Loan") with the Canadian Imperial Bank of Commerce and Deutsche Bank AG
("CIBC"). The Loan was collateralized by the mortality and expense risk charges
and surrender charges due from a separate account (that is distinct from the
separate account for the product described in this Prospectus) excluding any
portion thereof subject to existing reinsurance agreements. The Loan is
subordinated in every respect to the claims of the Company's contractholders.
The Company was subject to various affirmative and negative covenants under this
Loan, whereby breach of these covenants could have caused an event of default.
Such covenants required the Company to meet certain financial ratios and placed
restrictions on incurring additional debt, reinsurance and capital changes.
As a result of the merger with Manulife, the Company became party to a
restructured lending facility that will provide sufficient cash flow needs at
more favorable interest rate margins. Consequently, in April 1996, the Company
extinguished its debt with CIBC through a restructured financing arrangement
directly with Manulife.
Aside from the financing needs for funding acquisition costs, the
Company's cash flows are adequate to meet the general obligations on all annuity
contracts.
REINSURANCE
Peoples Security Life Insurance Company. See "REINSURANCE" for a
description of the reinsurance agreement with Peoples Security Life Insurance
Company.
Connecticut General Life Insurance Company and Swiss Re Life Company
America. The Company entered into treaties with Connecticut General Life
Insurance Company ("CIGNA") and Swiss Re Life Company America ("Swiss"),
effective July 1, 1995 and August 1, 1995, respectively, to reinsure its minimum
death benefit guarantee risks, with each company assuming 50% of the risk. In
addition, the Company reinsured with CIGNA 50% of its risk related to the
waiving of surrender charges at death. The Company is paying CIGNA and Swiss
under these reinsurance agreements an asset based premium, the level of which
varies with both the amount of exposure to this risk and the realized
experience.
23
<PAGE> 26
Transamerica. Effective November 1, 1995, the Company entered into two
reinsurance agreements with Transamerica Occidental Life Insurance Company
("Transamerica") for variable life insurance contracts. The first reinsurance
agreement provides quota-share modified-coinsurance for contract obligations
attributable to the variable account investment options. The second reinsurance
agreement provides yearly renewable term coverage for insurance amounts in
excess of the Company's retention limits.
ITT Lyndon Life. On December 31, 1993, the Company entered into a
modified coinsurance agreement with ITT Lyndon Life, to cede one of the
Company's variable annuity contract forms. As of December 31, 1995, 95% of these
contracts were ceded.
Paine Webber Life. Effective December 31, 1994, the Company entered
into an indemnity reinsurance agreement with Paine Webber Life to reinsure a
portion of its policy forms. The quota share percentage varies between 15% and
35% depending on the policy form. The form of reinsurance is modified
coinsurance and only covers the variable portion of contract written by Paine
Webber brokers. All elements of risk (including mortality, persistency and
investment performance) have been transferred with the exception of the minimum
death benefit guarantee. The Company receives an allowance to cover the expected
cost of the minimum death benefit guarantee.
Under each of the reinsurance agreements, the Company remains primarily
liable for the payment of benefits to all policyholders. In the event of a
reinsurer becoming insolvent, the Company remains liable for policyholder
benefits. For further information on the Company's reinsurance, see note F to
the Company's financial statements in this Prospectus.
RESERVES
In accordance with insurance laws and regulations under which the
Company operates and statutory accounting principles, the Company is obligated
to carry on its books, as liabilities, actuarially determined reserves to meet
its obligations on its outstanding contracts. Reserves are based on mortality
tables in general use in the United States and are computed to equal amounts
that, with additions from premiums to be received and with interest on such
reserves computed annually at certain assumed rates, will be sufficient to meet
the Company's contract obligations at their maturities or in the event of the
insured's death. In the financial statements included in this Prospectus, these
reserves are determined in accordance with statutory accounting principles.
For further information on the Company's reserves, see note E to the
Company's financial statements in this Prospectus.
INVESTMENTS
As noted above under "Reinsurance," all assets backing the fixed
annuity obligations of the Company were transferred to Peoples. The Company's
assets must be invested in accordance with requirements of applicable state laws
and regulations regarding the nature and quality of investments that may be made
by insurance companies and the percentage of its assets that may be held in
certain types of investments. In general, these laws permit investments, within
specified limits and subject to certain qualifications, in federal, state, and
municipal obligations, corporate bonds, preferred and common stocks, real estate
mortgages, real estate and certain other investments.
COMPETITION
The Company is engaged in a business that is highly competitive because
of the large number of stock and mutual life insurance companies and other
entities marketing annuity products. There are approximately 2,100 stock, mutual
and other types of insurers in the life insurance business in the United States,
a significant number of which are substantially larger than the Company. As of
December 31, 1996, the Company had 194 employees.
GOVERNMENT REGULATION
The Company is subject to the laws of the state of Delaware governing
insurance companies and to the regulation of the Delaware Insurance Department
(Manulife New York is subject to the laws and regulation of the State of New
York). In addition, the Company is subject to regulation under the insurance
laws of other
24
<PAGE> 27
jurisdictions in which the Company operates. Regulation by each insurance
department includes periodic examination to determine the Company's contract
liabilities and reserves so that each insurance department may verify that these
items are correct. Regulation by supervisory agencies includes licensing to
transact business, overseeing trade practices, licensing agents, approving
policy forms, establishing reserve requirements, fixing maximum interest rates
on life insurance policy loans and minimum rates for accumulation of surrender
values, prescribing the form and content of required financial statements and
regulation of the type and amounts of investments permitted. The Company's books
and accounts are subject to review by each insurance department and other
supervisory agencies at all times, and the Company files annual statements with
these agencies. A full examination of the Company's operations is conducted
periodically by the Delaware insurance department.
In addition, several states, including Delaware and Michigan, regulate
affiliated groups of insurers, such as the Company, under insurance holding
company legislation. Manulife's state of entry for insurance regulatory purposes
is Michigan. In addition, several of its insurance subsidiaries are domiciled
there. Consequently, Michigan's Insurance Bureau has jurisdiction in applying
such legislation to transactions between Manulife and its U.S. insurance company
affiliates. Under such laws, intercompany transactions, transfers of assets and
dividend payments from insurance subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in relation to
the financial positions of the companies. Transactions between the Company and
WLA are primarily regulated by Delaware, but may also be regulated by Michigan
if the transaction involves Manulife or any of its insurance subsidiaries
domiciled in Michigan.
Under insurance guaranty fund laws in most states, insurers doing
business therein can be assessed (up to prescribed limits) for policyholder
losses incurred by insolvent companies. The amount of any future assessments on
the Company under these laws cannot be reasonably estimated. Most of these laws
do provide, however, that an assessment may be excused or deferred if it would
threaten an insurer's own financial strength.
Although the federal government generally does not directly regulate
the business of insurance, federal initiatives often have an impact on the
business in a variety of ways. Federal legislation that removed barriers
preventing banks from engaging in the insurance business or that changed the
Federal income tax treatment of insurance companies, insurance company products,
or employee benefit plans could significantly affect the insurance business.
25
<PAGE> 28
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
6/30/97 ---------------------------------------------------------------------
unaudited 1996 1995 1994 1993 1992
--------------- -------------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Premiums, Annuity Deposits and Other
Revenue............................ $ 724,899 $ 1,027,373 $ 991,552 $1,139,953 $1,255,219 $ 471,449
Investment Income, Net of Investment
Expenses........................... 2,421 5,172 35,910 30,560 27,851 30,307
Commissions and Expense Allowances on
Reinsurance Ceded.................. 12,899 25,223 14,677 7,019 587 9,378
Reserve Adjustment on Reinsurance
Ceded.............................. (26,682) (16,460) (48,223) (6,024) (23,682) 114,567
Other Revenue........................ 1,279 3,880 3,901 4,968
-------------- -------------- ---------- ---------- ---------- ----------
714,816 1,045,188 997,817 1,176,476 1,259,975 625,701
-------------- -------------- ---------- ---------- ---------- ----------
BENEFITS AND EXPENSES
Policyholder Benefits................ 244,228 381,765 269,689 206,711 195,065 115,655
Commissions on Premiums and Annuity
Considerations..................... 49,695 82,257 73,594 81,981 82,137 43,291
Reserves............................. 1,131 1,743 (517,161) 146,552 5,338 20,902
Net Transfers to Separate Accounts... 389,484 525,172 415,529 732,768 971,871 428,857
Reinsurance Costs.................... 2,378 3,204 727,523
Other Expenses....................... 24,451 48,570 33,298 31,883 13,945 37,078
-------------- -------------- ---------- ---------- ---------- ----------
711,367 1,042,711 1,002,472 1,199,895 1,268,356 645,783
-------------- -------------- ---------- ---------- ---------- ----------
Loss Before Federal Income Tax
Provision.......................... 3,449 2,477 (4,655) (23,419) (8,381) (20,082)
Federal Income Tax Provision......... 142 85 6 193
-------------- -------------- ---------- ---------- ---------- ----------
Loss from Operations After Federal
Income Tax Provision............... 3,307 2,392 (4,655) (23,425) (8,574) (20,082)
Net Realized Capital Gains
(Losses)........................... (2,137) 675 (2,633) (7,029) (2,104) (229)
-------------- -------------- ---------- ---------- ---------- ----------
Net Loss from Operations............. $ 1,170 $ 3,067 ($ 7,288) ($ 30,454) ($ 10,678) ($ 20,311)
============== ============== ========== ========== ========== ==========
Total Assets......................... $7,756,111,016 $6,517,773,444 $4,962,504 $4,240,248 $3,415,584 $2,024,019
============== ============== ========== ========== ========== ==========
</TABLE>
26
<PAGE> 29
OFFICERS AND DIRECTORS OF THE COMPANY
The directors and executive officers of the Company, together with
their principal occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
NAME POSITION WITH THE PRINCIPAL OCCUPATION
COMPANY
<S> <C> <C>
John D. DesPrez III Director* and President Vice President, U.S. Annuities, Manulife,
September 1996 to present; Director and
Age: 40 President of the Company, September 1996 to
present; Vice President, Mutual Funds,
Manulife, January, 1995 to September 1996,
President and Chief Executive Officer, North
American Funds, March 1993 to September
1996; Vice President and General Counsel of
the Company, January 1991 to June 1994.
Peter S. Hutchison Director* Senior Vice President, Corporate Taxation,
Manulife, January 1996 to present; Director
Age: 47 of the Company January 1991 to present;
Executive Vice President and Chief Financial
Officer, North American Life, September 1994
to December 31, 1995; Senior Vice President
and Chief Actuary, North American Life,
April 1992 to August 1994; Vice President
and Chief Actuary, North American Life,
September 1990 to March 1992.
John D. Richardson Director* and Chairman of the Senior Vice President and General Manager,
Board U.S. Operations, Manulife, January 1995 to
Age: 59 present; Director and Chairman of the Board
of the Company, March 1997 to present;
Senior Vice President and General Manager,
Canadian Operations, Manulife, June 1992 to
January 1995; Senior Vice President,
Financial Services, Manulife, prior to June
1992.
Robert Boyda Vice Present, Investment Vice President, Investment Management
Management Services Services of the Company, January 1997 to
Age: 41 present; Assistant Vice President,
Management Service, Manulife, August 1994 to
January 1997; General Manager, Retail
Banking, CIBC, January 1987 to April 1994.
James R. Boyle Vice President, Administration Vice President, Administration Accumulation
Products, Manulife September 1996 to
Age: 38 present; Vice President, Administration of
the Company, September 1996 to present; Vice
President, Treasurer and Chief
Administrative Officer, North American
Funds, June 1994 to September 1996;
Corporate Controller of the Company, July
1993 to June 1994; Mutual Fund Accounting
Executive of the Company, June 1992 to July
1993; Audit Manager, Coopers & Lybrand
L.L.P, 1990 to June 1992.
</TABLE>
27
<PAGE> 30
<TABLE>
<S> <C> <C>
James D. Gallagher Vice President, Secretary and Vice President, Legal Services U.S.
General Counsel Operations, Manulife, January 1996 to
Age: 43 present; Vice President, Secretary and
General Counsel of the Company, June 1994 to
present; Vice President and Associate
General Counsel, The Prudential Insurance
Company of America, 1990-1994.
Richard C. Hirtle Vice President, Treasurer, and Vice President, Chief Financial Officer,
Chief Financial Officer Annuities, Manulife, January 1996 to
Age: 42 present; Chief Financial Officer of the
Company, September 1996 to present; Vice
President of the Company January 1996 to
present; Treasurer of the Company November
1988 to present.
Hugh C. McHaffie Vice President, U.S. Annuities Vice President, Annuities and Product
Product and Development Development, of Manulife, January 1996 to
Age: 38 present; Vice President, U.S. Annuities
Product and Development of the Company
August 1994 to present; Product Development
Executive of the Company, August 1990 to
August 1994.
David W. Libbey Vice President, Finance Vice President, Finance of the Company June
1997 to present; Vice President & Actuary,
Age: 49 Second Vice President & Actuary, Associate
Actuary, Paul Revere Insurance Group June
1970 to March 1997.
Joseph Scott Vice President, Accumulation Vice President, Accumulation Life Products
Life Products of the Company, March 1997 to present;
Age: 48 President, First North American Life,
November 1996 to present; President, North
American Funds, October 1996 to present;
Vice President, Business Development and
Marketing, North American Funds January 1996
to October 1996; Vice President, Annuities,
Manulife January 1995 to December 1995; Vice
President, Distribution, Manulife January
1991 to December 1994.
Janet Sweeney Vice President, Corporate Vice President, Human Resources, U.S.
Services Operations, Manulife, January 1996 to
Age: 47 present; Vice President, Corporate Services
of the Company, January 1995 to present;
Executive, Corporate Services of the
Company, July 1989 to December 1994.
John G. Vrysen Vice President and Chief Actuary Vice President and Chief Financial Officer,
U.S. Operations, Manulife, January 1996 to
Age: 42 present; Vice President and Chief Actuary of
the Company, January 1986 to present.
</TABLE>
29
<PAGE> 31
*Each Director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and qualified.
30
<PAGE> 32
EXECUTIVE COMPENSATION
The Company's executive officers may also serve as officers of one or
more of the Company's affiliates including Manulife New York and Manulife and
its affiliates. Allocations have been made as to such officers' time devoted to
duties as executive officers of the Company. The following table shows the
allocated compensation paid or awarded to or earned by the Company's Chief
Executive Officer for services provided to the Company. No other executive
officer had allocated cash compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME AND YEAR SALARY BONUS OTHER ANNUAL ALL OTHER
PRINCIPAL COMPENSATION COMPENSATION
POSITION (1) (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William J. 1996 $101,250 $ 3,790 $4,531 $4,521
Atherton,
President*
John D DesPrez, 1996 $107,004 $10,673 $ 969 $5,108
President**
</TABLE>
*President prior to September 1996.
**President since September 1996.
(1) Other Annual Compensation includes car allowance, car expense reimbursement
and group term life insurance premiums.
(2) Other Compensation includes Company paid 401(k) plan and pension
contributions.
No executive officer participates in the formulation of his or her
compensation. The compensation of executive officers is determined by the
individual to whom the officer reports and is approved by Manulife.
In addition to cash compensation, all officers are entitled to a
standard benefit package including medical, dental, pension, basic and dependent
life insurance, defined contribution plan and long and short-term disability
coverage. There are no other benefit packages which currently enhance overall
compensation by more than 10%.
Executive officers participate in certain plans sponsored by the
Company. A short-term incentive plan is in place for all employees of the
Company at the executive level and above. Pay-outs under the short-term
incentive plan are based on a percentage of salary and the employee's level in
the organization.
All employees at the Assistant Vice President level or above are
eligible for the Manulife Annual Incentive Plan. Under this plan, a reward
target is established for each organizational level of Manulife, expressed as a
percentage of the employee's base salary as of December 31st of the plan year.
Incentive payments are based on Manulife earnings and organizational level
objectives as well as individual achievement.
All employees at the Vice President level and above are eligible to
participate in the Manulife Long Term Incentive Plan. The Manulife Long Term
Incentive Plan is an appreciation rights plan. Participation in this plan is
generally granted to officers of Manulife who are recommended for participation
in the plan by the Chief Executive Officer of Manulife and the Management
Resource Compensation Committee of Manulife. Grants under the plan are
calculated based on the officer's position at Manulife as well as certain other
factors and are split evenly into two categories, cash appreciation rights and
retirement appreciation rights. Grants appreciate proportionally to the
statutory surplus of Manulife. Cash appreciation rights may be exercised on or
after the fourth anniversary of the grant whereas retirement appreciation rights
may only be exercised upon retirement.
Prior to December 31, 1995, NAL maintained a defined benefit pension
plan for all U.S. employees which vests at five years of service. This plan has
been continued by Manulife. Benefit pay-out is a function of years of service
and average earnings during the employee's last five years of service. Under the
Internal Revenue Code of 1986, as amended (the "Code"), the annual Pension
Credit is currently earned at a maximum salary of $150,000.
31
<PAGE> 33
Normal retirement age is 65. Pay-out is an annuity based with either a single
life with a 10 year guarantee or joint life and 50% survivor. The normal
retirement benefit is a monthly pension benefit in an amount equal to the
Employer Pension Credit plus the Participant Pension Credit (The plan has been
non-contributory since January 1, 1990). The Employer Pension Credit is
determined as follows:
The Employer Pension Credit is generally equal to the average of the
pension Units A during the employee's last five years of employment, multiplied
by the years of benefit service earned after December 31, 1966 (not to exceed 35
years). For each year in the average period, the Pension Units A is equal to
1.1% of compensation plus 0.4% of compensation in excess of the Social Security
Taxable Wage Base. Pension Units A prior to January 1, 1981 are calculated using
only compensation less than or equal to $75,000.
Combined pension benefits at age 65 under these arrangements are as
follows:
<TABLE>
<CAPTION>
Years of Service
- --------------------------------------------------------------------------------
Remuneration* 15 20 25 30 35
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$125,000 $21,881 $29,175 $36,468 $43,762 $51,056
150,000 26,995 35,994 44,992 53,990 62,989
175,000 30,239 40,318 50,398 60,478 70,557
200,000 30,510 40,680 50,850 61,020 71,190
225,000 30,510 40,680 50,850 61,020 71,190
250,000 30,510 40,680 50,850 61,020 71,190
300,000 30,510 40,680 50,850 61,020 71,190
400,000 30,510 40,680 50,850 61,020 71,190
</TABLE>
*Remuneration table is based on a 100% time allocation to the Company.
William J. Atherton and John D. DesPrez have 32 years and 6 years of
vested service, respectively.
Effective January 1, 1996, employees of the Company with earnings
exceeding federally mandated limits and eligible for the Manulife or NAL U.S.
defined benefit pension plan, became eligible for Manulife's Supplemental
Executive Retirement Plan. This is a noncontributory, non-qualified plan
intended to provide additional pension income consistent with the executive's
pre-retirement income. The pension earned under the Supplemental Executive
Retirement Plan is 60% of the average of the highest 5 years of earnings up to
$200,000 plus 30% of the average of the highest 5 years of earnings between
$200,000 and $500,000 plus 10% of the average of the highest 5 years of earnings
in excess of $500,000, less 15.75% of the average of the 3 years earnings up to
the Social Security Covered Compensation, multiplied by the credited years of
service (up to a maximum of 35 years), divided by 35, less the pension earned
under the Manulife or NAL U.S. defined benefit pension plan.
Combined pension benefits at age 65 under these arrangements are as
follows:
<TABLE>
<CAPTION>
Years of Service
- --------------------------------------------------------------------------------
Remuneration* 15 20 25 30 35
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$150,000 $ 0 $ 0 $ 0 $ 0 $ 0
175,000 2,138 2,850 3,563 4,275 4,988
200,000 7,673 10,230 12,788 15,345 17,903
225,000 12,930 17,240 21,550 25,860 30,170
250,000 15,853 21,137 26,421 31,705 36,989
300,000 21,697 28,930 36,162 43,395 50,627
400,000 33,387 44,516 55,645 66,774 77,903
500,000 45,077 60,102 75,128 90,153 105,179
</TABLE>
The Company offers a defined contribution plan pursuant to 401(k) of the
Code which allows employees to contribute up to 6% of their base annual salary.
The Company matches 50% of the employee contributions as well as contributes a
floor amount of 2% of base pay for each pay period. The maximum total
contribution (including employer contributions), based on the maximum taxable
wage as set forth in the Code is $16,500. Company
32
<PAGE> 34
employees are 100% vested in the Company floor contributions and personal
contributions to the plan. Employees become 100% vested in the employer matching
contributions if he or she retires on or after age 65, becomes disabled or dies.
Otherwise, employees earn a right to employer contributions through the
following vesting schedule:
<TABLE>
<CAPTION>
Years of Service Vested Portion of Company Contribution
----------------------------------------------------------------------
<S> <C>
Less than 3 None
At least 3 33 1/3%
At least 4 66 2/3%
5 or more 100%
</TABLE>
Directors of the Company, all of whom are also officers or employees of
the Company or its affiliates, receive no compensation in addition to their
compensation as officers or employees of the Company or its affiliates. No
shares of the Company or any of its affiliates are owned by any executive
officer or Director of the Company.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA SEPARATE ACCOUNT D,
FORMERLY, NASL FIXED ACCOUNT (THE "FIXED ACCOUNT")
The Company established the Fixed Account in 1996 as a separate account
under Delaware law. It is not a registered investment company. The Fixed Account
holds assets that are segregated from all of the Company's other assets. The
Fixed Account is currently used only to support the obligations under the
contracts offered by this prospectus. These obligations are based on interest
rates credited to the contracts and do not depend on the investment performance
of the Fixed Account. Any gain or loss in the Fixed Account accrues solely to
the Company and the Company assumes any risk associated with the possibility
that the value of the assets in the Fixed Account might fall below the reserves
and other liabilities that must be maintained. Should the value of the assets in
the Fixed Account fall below reserve and other liabilities, the Company will
transfer assets from its General Account to the Fixed Account to make up the
shortfall. The Company reserves the right to transfer to its General Account any
assets of the Fixed Account in excess of such reserves and other liabilities and
to maintain assets in the Fixed Account which support any number of annuities
which the Company offers or may offer. The assets of the Fixed Account are not
insulated from the claims of the Company's creditors and may be charged with
liabilities which arise from other business conducted by the Company. Thus the
Company may, at its discretion if permitted by applicable state law, transfer
existing Fixed Account assets to, or place future Fixed Account allocations in,
it General Account for purposes of administration.
The assets of the Fixed Account will be invested in those assets chosen
by the Company and permitted by applicable state laws for separate account
investment. As noted above under "REINSURANCE," Peoples is responsible for
investing an agreed upon percentage (currently, 100%) of the assets in the Fixed
Account.
DISTRIBUTION OF THE CONTRACT
MSS, 116 Huntington Avenue, Boston, Massachusetts, 02116, a
wholly-owned subsidiary of the Company, is the principal underwriter of the
contract. MSS is a broker-dealer registered under the 1934 Act and a member of
the National Association of Securities Dealers, Inc. (the "NASD"). MSS has
entered into an non-exclusive promotional agent agreement with WLA. WLA is a
broker-dealer registered under the 1934 Act and a member of the NASD. WLA is a
wholly owned subsidiary of a holding company that is 85% owned by Manulife and
approximately 15% owned by the principals of WLA. Sales of the contract will be
made by registered representatives of broker-dealers authorized by MSS to sell
the contracts. Such registered representatives will also be licensed insurance
agents of the Company. Under the promotional agent agreement, WLA will recruit
and provide sales training and licensing assistance to such registered
representatives. In addition, WLA will prepare sales and promotional materials
for the Company's approval. MSS will pay distribution compensation to selling
brokers in varying amounts which under normal circumstances are not expected to
exceed 5% of purchase payments. MSS may from time to time pay additional
compensation pursuant to promotional contests. Additionally, in some
circumstances, MSS will provide reimbursement of certain sales and marketing
expenses. MSS will pay WLA for providing marketing support for the distribution
of the contract.
LEGAL PROCEEDINGS
33
<PAGE> 35
There are no material pending legal proceedings, other than ordinary
routine litigation, to which either the Company or any of its subsidiaries is a
party or to which any of their property is subject and, to the best knowledge of
the Company, no such proceedings are contemplated by any governmental authority.
LEGAL MATTERS
All matters of applicable state law pertaining to the contract,
including the Company's right to issue the contract thereunder, have been passed
upon by James D. Gallagher, Esq., Vice President, Secretary and General Counsel
of the Company.
INDEPENDENT AUDITORS
The financial statements of the Company at December 31, 1996 and for
the year then ended appearing in this Prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and is included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The statutory balance sheet of the Company as of December 31, 1995 and
the related statutory statements of operations, changes in capital and deficit
and cash flows for each of the two years in the period ended December 31, 1995,
appearing in this Prospectus have been included herein in reliance on the report
(which report includes an adverse opinion as to generally accepted accounting
principles and an unqualified opinion as to statutory accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware),
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The financial statements of the Company which are included in the
Prospectus should be considered only as bearing on the ability of the Company to
meet its obligations under the contracts. They should not be considered as
bearing on the investment performance of the assets held in the Variable
Account.
NOTICES AND REPORTS TO CONTRACT OWNERS
At least once each contract year, the Company will send to contract
owners a statement showing the contract value of the contract as of the date of
the statement. The statement will also show premium payments and any other
information required by any applicable law or regulation.
CONTRACT OWNER INQUIRIES
All contract owner inquiries should be directed to the Company's Annuity Service
Office at P.O. Box 9230, Boston, Massachusetts 02205-9230.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion of the federal income tax treatment of the
Contracts is not exhaustive, does not purport to cover all situations, and is
not intended as tax advice. The federal income tax treatment of the Contracts is
unclear in certain circumstances, and a qualified tax adviser should always be
consulted with regard to the application of law to individual circumstances.
This discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Department regulations, and interpretations existing on the
date of this Prospectus. These authorities, however, are subject to change by
Congress, the Treasury Department, and judicial decisions.
34
<PAGE> 36
This discussion does not address state or local tax consequences
associated with the purchase of the Contracts. In addition, THE COMPANY MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY
CONTRACT OR OF ANY TRANSACTION INVOLVING A CONTRACT.
35
<PAGE> 37
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under the Code. The
assets in the separate account will be owned by the Company, and the income
derived from such assets will be includible in the Company's income for federal
income tax purposes.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL DURING ACCUMULATION PERIOD
Under existing provisions of the Code, except as described below, any
increase in an owner's contract value is generally not taxable to the owner or
annuitant until received, either in the form of annuity payments as contemplated
by the Contracts, or in some other form of distribution. However, this rule
applies only if the owner is an individual.
As a general rule, deferred annuity contracts held by "non-natural
persons," such as a corporation, trust or other similar entity, as opposed to a
natural person, are not treated as annuity contracts for federal tax purposes.
The income on such contracts (as defined in the tax law) is taxed as ordinary
income that is received or accrued by the owner during the taxable year. There
are several exceptions to this general rule for non-natural contract owners.
First, annuity contracts will generally be treated as held by a natural person
if the nominal owner is a trust or other entity which holds the contract as an
agent for a natural person. Thus, if a group annuity contract is held by a trust
or other entity as an agent for contract owners who are individuals, those
individuals should be treated as owning an annuity contract for federal income
tax purposes. However, this exception will not apply in the case of any employer
which is the nominal owner of an annuity contract under a non-qualified deferred
compensation arrangement for its employees.
Other exceptions to the general rule for non-natural contract owners
will apply with respect to (1) annuity contracts acquired by an estate of a
decedent by reason of the death of the decedent, (2) certain annuity contracts
issued in connection with various qualified retirement plans, (3) annuity
contracts purchased by employers upon the termination of certain qualified
retirement plans, (4) certain annuity contracts used in connection with
structured settlement agreements, and (5) annuity contracts purchased with a
single premium when the annuity starting date is no later than a year from
purchase of the annuity and substantially equal periodic payments are made, not
less frequently than annually, during the annuity period.
In addition to the foregoing, if the Contract's maturity date is
scheduled to occur at a time when the annuitant is at an advanced age, such as
over age 85, it is possible that the owner will be taxable currently on the
annual increase in the contract value.
The remainder of this discussion assumes that the contract will
constitute an annuity for federal tax purposes.
TAXATION OF PARTIAL AND TOTAL WITHDRAWALS
In the case of a partial withdrawal, amounts received generally are
includible in income to the extent the owner's contract value before the
withdrawal exceeds his or her "investment in the contract." In the case of a
total withdrawal, amounts received are includible in income to the extent they
exceed the "investment in the contract." For these purposes the investment in
the contract at any time equals the total of the purchase payments made under
the Contract to that time (to the extent such payments were neither deductible
when made nor excludable from income as, for example, in the case of certain
employer contributions to Qualified Plans) less any amounts previously received
from the Contract which were not included in income.
Other than in the case of Contracts issued in connection with certain
Qualified Plans (which generally cannot be assigned or pledged), any assignment
or pledge (or agreement to assign or pledge) any portion of the contract value
is treated as a withdrawal of such amount or portion. The investment in the
contract is increased by the amount includible in income with respect to such
assignment or pledge, though it is not affected by any other aspect of the
assignment or pledge (including its release). If an owner transfers a Contract
without adequate consideration to a person other than the owner's spouse (or to
a former spouse incident to divorce), the owner will be taxed on the difference
between his or her contract value and the investment in the contract at the time
of
36
<PAGE> 38
transfer. In such case, the transferee's investment in the contract will be
increased to reflect the increase in the transferor's income.
There is some uncertainty regarding the treatment of the market value
adjustment for purposes of determining the amount includible in income as a
result of any partial withdrawal or transfer without adequate consideration.
Congress has given the Internal Revenue Service ("IRS") regulatory authority to
address this uncertainty. However, as of the date of this Prospectus, the IRS
has not issued any regulations addressing these determinations.
TAXATION OF ANNUITY PAYMENTS
Normally, the portion of each annuity payment taxable as ordinary
income is equal to the excess of the payment over the exclusion amount. The
exclusion amount is the amount determined by multiplying (1) the payment by (2)
the ratio of the investment in the contract, adjusted for any period certain or
refund feature, to the total expected value of annuity payments for the term of
the Contract (determined under Treasury Department regulations). A simplified
method of determining the taxable portion of annuity payments applies to
Contracts issued in connection with certain Qualified Plans.
Once the total amount of the investment in the contract is excluded
using this ratio, annuity payments will be fully taxable. If annuity payments
cease because of the death of the annuitant and before the total amount of the
investment in the contract is recovered, the unrecovered amount generally will
be allowed as a deduction to the annuitant in his last taxable year.
There may be special income tax issues present in situations where the
owner and the annuitant are not the same person or are not married. A tax
advisor should be consulted in those situations.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a non-qualified Contract because of the
death of an owner or the annuitant. Prior to the maturity date, such death
benefit proceeds are includible in income as follows: (1) if distributed in a
lump sum, they are taxed in the same manner as a full withdrawal, as described
above, or (2) if distributed under an annuity option, they are taxed in the same
manner as annuity payments, as described above. After the maturity date, where a
guaranteed period exists under an annuity option and the annuitant dies before
the end of that period, payments made to the beneficiary for the remainder of
that period are includible in income as follows: (1) if received in a lump sum,
they are includible in income to the extent that they exceed the unrecovered
investment in the Contract at that time, or (2) if distributed in accordance
with the existing annuity option selected, they are fully excludable from income
until the remaining investment in the Contract is deemed to be recovered, and
all annuity payments thereafter are fully includible in income.
PENALTY TAX ON PREMATURE DISTRIBUTIONS
Where a Contract has not been issued in connection with a Qualified
Plan, there generally is a 10% penalty tax on the taxable amount of any payment
from the Contract unless the payment is: (a) received on or after the owner
reaches age 59 1/2; (b) attributable to the owner's becoming disabled (as
defined in the tax law); (c) made on or after the death of the owner or, if the
owner is not an individual, on or after the death of the primary annuitant (as
defined in the tax law); (d) made as a series of substantially equal periodic
payments (not less frequently than annually) for the life (or life expectancy)
of the annuitant or the joint lives (or joint life expectancies) of the
annuitant and a "designated beneficiary" (as defined in the tax law); or (e)
made under a Contract purchased with a single premium when the maturity date is
no later than a year from purchase of the Contract and substantially equal
periodic payments are made, not less frequently than annually, during the
annuity period.
AGGREGATION OF CONTRACTS
In certain circumstances, the IRS may determine the amount of an
annuity payment or a withdrawal from a Contract that is includible in income by
combining some or all of the annuity contracts owned by an individual
37
<PAGE> 39
which are not issued in connection with a Qualified Plan. For example, if a
person purchases a Contract offered by this Prospectus and also purchases at
approximately the same time an immediate annuity, the IRS may treat the two
contracts as one contract.
In addition, if a person purchases two or more deferred annuity
contracts from the same insurance company (or its affiliates) during any
calendar year, all such contracts will be treated as one contract for purposes
of determining whether any payment not received as an annuity (including
withdrawals prior to the maturity date) is includible in income. Thus, if during
a calendar year a person buys two or more of the Contracts offered by this
Prospectus (which might be done, for example, in order to invest amounts in
different guarantee periods), all of such Contracts would be treated as one
Contract in determining whether withdrawals from any of such Contracts are
includible in income.
The effects of such aggregation are not clear and depend on the
circumstances. However, aggregation could affect the amount of a withdrawal that
is taxable and the amount that might be subject to the 10% penalty tax described
above.
Loss of Interest Deduction Where Contracts Are Held by or for the Benefit of
Certain Non-natural Persons
In the case of Contracts issued after June 8, 1997 to a non-natural
taxpayer (such as a corporation or a trust), or held for the benefit of such an
entity, recent changes in the tax law may result in otherwise deductible
interest no longer being deductible by the entity, regardless of whether the
debt is used to purchase or carry the Contract. However, this interest deduction
disallowance does not affect Contracts where the income on such Contracts is
treated as ordinary income that is received or accrued by the owner during the
taxable year. Entities that are considering purchasing the Contract, or entities
that will be beneficiaries under a Contract, should consult a tax advisor.
QUALIFIED RETIREMENT PLANS
IN GENERAL
The Contracts are also designed for use in connection with certain
types of qualified retirement plans which receive favorable treatment under the
Code. Those who are considering purchase of a contract for use in connection
with a qualified retirement plan should consider, in evaluating the suitability
of the contract, that the contract allows only a single premium purchase payment
in an amount of at least $5,000.
The tax rules applicable to qualified plans vary according to the type
of plan and the terms and conditions of the plan itself. For example, for both
withdrawals and annuity payments under certain qualified Contracts, there may be
no "investment in the Contract" and the total amount received may be taxable.
Also, loans from Qualified Contracts, where allowed, are subject to a variety of
limitations, including restrictions as to the amount that may be borrowed, the
duration of the loan, and the manner in which the loan must be repaid. (Owners
should always consult their tax advisors and retirement plan fiduciaries prior
to exercising their loan privileges.) Both the amount of the contribution that
may be made, and the tax deduction or exclusion that the owner may claim for
such contribution, are limited under Qualified Plans. If this Contract is used
in connection with a Qualified Plan, the owner and annuitant must be the same
individual. If a co-annuitant is named, all distributions made while the
annuitant is alive must be made to the annuitant. Also, if a co-annuitant is
named who is not the annuitant's spouse, the annuity options which are available
may be limited, depending on the difference in ages between the annuitant and
co-annuitant. Furthermore, the length of any guarantee period may be limited in
some circumstances to satisfy certain minimum distribution requirements under
the Code.
In addition, special rules apply to the time at which distributions
must commence and the form in which the distributions must be paid. For example,
failure to comply with minimum distribution requirements applicable to Qualified
Plans will result in the imposition of an excise tax. This excise tax generally
equals 50% of the amount by which a minimum required distribution exceeds the
actual distribution from the Qualified Plan. In the case of IRAs, distributions
of minimum amounts (as specified in the tax law) must generally commence by
April 1 of the calendar year following the calendar year in which the owner
attains age 70 1/2. In the case of certain other Qualified Plans, distributions
of such minimum amounts generally must commence by the later of this date or
April 1 of the calendar year following the calendar year in which the employee
retires.
38
<PAGE> 40
There is also a 10% penalty tax on the taxable amount of any payment
from certain qualified Contracts (but not section 457 plans). (The amount of the
penalty tax is 25% of the taxable amount of any payment received from a "SIMPLE
retirement account" during the 2-year period beginning on the date the
individual first participated in any qualified salary reduction agreement (as
defined in the tax law) maintained by the individual's employer.) There are
exceptions to this penalty tax which vary depending on the type of Qualified
Plan. In the case of an "Individual Retirement Annuity" ("IRA"), including a
"SIMPLE IRA," exceptions provide that the penalty tax does not apply to a
payment (a) received on or after the owner reaches age 59 1/2, (b) received on
or after the owner's death or because of the owner's disability (as defined in
the tax law), or (c) made as a series of substantially equal periodic payments
(not less frequently than annually) for the life (or life expectancy) of the
owner or for the joint lives (or joint life expectancies) of the owner and
designated beneficiary (as defined in the tax law). These exceptions, as well as
certain others not described herein, generally apply to taxable distributions
from other Qualified Plans (although, in the case of plans qualified under
sections 401 and 403, exception "c" above for substantially equal periodic
payments applies only if the owner has separated from service). In addition, the
penalty tax does not apply to certain distributions from IRAs taken after
December 31, 1997 which are used for qualified first time home purchases or for
higher education expenses. Special conditions must be met to qualify for these
two exceptions to the penalty tax. Those wishing to take a distribution from an
IRA for these purposes should consult their tax advisor.
When issued in connection with a Qualified Plan, a Contract will be
amended as generally necessary to conform to the requirements of the plan.
However, owners, annuitants, and beneficiaries are cautioned that the rights of
any person to any benefits under Qualified Plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract. In addition, the Company shall not be bound by terms and
conditions of Qualified Plans to the extent such terms and conditions contradict
the Contract, unless the Company consents.
QUALIFIED PLAN TYPES
Following are brief descriptions of various types of Qualified Plans in
connection with which the Company may issue a Contract.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." IRAs are subject to limits on the
amounts that may be contributed, the persons who may be eligible and on the time
when distributions may commence. Also, distributions from certain Qualified
Plans may be "rolled over" on a tax-deferred basis into an IRA. The Contract may
not, however, be issued in connection with an "Education IRA" under Section 530
of the Code.
SIMPLIFIED EMPLOYEE PENSIONS (SEP-IRAS). Section 408(k) of the Code
allows employers to establish simplified employee pension plans for their
employees, using the employees' IRAs for such purposes, if certain criteria are
met. Under these plans the employer may, within specified limits, make
deductible contributions on behalf of the employees to IRAs. Employers intending
to use the Contract in connection with such plans should seek competent advice.
SIMPLE IRAS. Section 408(p) of the Code permits certain small employers
to establish "SIMPLE retirement accounts," including SIMPLE IRAs, for their
employees. Under SIMPLE IRAs, certain deductible contributions are made by both
employees and employers. SIMPLE IRAs are subject to various requirements,
including limits on the amounts that may be contributed, the persons who may be
eligible, and the time when distributions may commence.
CORPORATE AND SELF-EMPLOYED ("H.R. 10" AND "KEOGH") PENSION AND
PROFIT-SHARING PLANS. Sections 401(a) and 403(a) of the Code permit corporate
employers to establish various types of tax-favored retirement plans for
employees. The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10" or "Keogh", permits self-employed
individuals also to establish such tax-favored retirement plans for themselves
and their employees. Such retirement plans may permit the purchase of the
Contract in order to provide benefits under the plans. Employers intending to
use the Contract in connection with such plans should seek competent advice.
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<PAGE> 41
TAX-SHELTERED ANNUITIES. Section 403(b) of the Code permits public
school employees and employees of certain types of charitable, educational and
scientific organizations specified in Section 501(c)(3) of the Code to have
their employers purchase annuity contracts for them and, subject to certain
limitations, to exclude the amount of purchase payments from gross income for
tax purposes. These annuity contracts are commonly referred to as "tax-sheltered
annuities." Purchasers of the Contracts for such purposes should seek competent
advice as to eligibility, limitations on permissible amounts of purchase
payments and other tax consequences associated with the Contracts.
Section 403(b) Policies contain restrictions on withdrawals of (i)
contributions made pursuant to a salary reduction agreement in years beginning
after December 31, 1988, (ii) earnings on those contributions, and (iii)
earnings in such years on amounts held as of the last year beginning before
January 1, 1989. These amounts can be paid only if the employee has reached age
59 1/2, separated from service, died, become disabled, or in the case of
hardship. Amounts permitted to be distributed in the event of hardship are
limited to actual contributions; earnings thereon cannot be distributed on
account of hardship. (These limitations on withdrawals do not apply to the
extent the Company is directed to transfer some or all of the contract value to
the issuer of another tax-sheltered annuity or into a Section 403(b)(7)
custodial account.)
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND
TAX-EXEMPT ORGANIZATIONS. Section 457 of the Code permits employees of state and
local governments and tax-exempt organizations to defer a portion of their
compensation without paying current taxes. The employees must be participants in
an eligible deferred compensation plan. Generally, a Contract purchased by a
state or local government or a tax-exempt organization will not be treated as an
annuity contract for federal income tax purposes. Those who intend to use the
Contract in connection with such plans should seek competent advice.
DIRECT ROLLOVER RULES
In the case of Contracts used in connection with a pension,
profit-sharing, or annuity plan qualified under Sections 401(a) or 403(a) of the
Code, or in the case of a Section 403(b) tax sheltered annuity, any "eligible
rollover distribution" from the Contract will be subject to direct rollover and
mandatory withholding requirements. An eligible rollover distribution generally
is any taxable distribution from a qualified pension plan under Section 401(a)
of the Code, qualified annuity plan under Section 403(a) of the Code, or Section
403(b) tax sheltered annuity or custodial account, excluding certain amounts
(such as minimum distributions required under Section 401(a)(9) of the Code and
distributions which are part of a "series of substantially equal periodic
payments" made for life or a specified period of 10 years or more).
Under these requirements, withholding at a rate of 20% will be imposed
on any eligible rollover distribution. In addition, the participant in these
qualified retirement plans cannot elect out of withholding with respect to an
eligible rollover distribution. However, this 20% withholding will not apply if,
instead of receiving the eligible rollover distribution, the participant elects
to have amounts directly transferred to certain qualified retirement plans (such
as to an Individual Retirement Annuity). Prior to receiving an eligible rollover
distribution, a notice will be provided explaining generally the direct rollover
and mandatory withholding requirements and how to avoid the 20% withholding by
electing a direct rollover.
FEDERAL INCOME TAX WITHHOLDING
The Company will withhold and remit to the U.S. government a part of
the taxable portion of each distribution made under a Contract unless the
distributee notifies the Company at or before the time of the distribution that
he or she elects not to have any amounts withheld. In certain circumstances, the
Company may be required to withhold tax. The withholding rates applicable to the
taxable portion of periodic annuity payments are the same as the withholding
rates generally applicable to payments of wages. The withholding rate applicable
to the taxable portion of non-periodic payments (including withdrawals prior to
the maturity date) is 10%. As described above, the withholding rate applicable
to eligible rollover distributions is 20%.
GENERAL MATTERS
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
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Section 830.105 of the Texas Government Code permits participants in
the Texas Optional Retirement Program ("ORP") to withdraw their interest in a
deferred annuity contract issued under the ORP only upon (1) termination of
employment in the Texas public institutions of higher education, (2) retirement,
(3) death, or (4) the participant's attainment of age 70 1/2. Accordingly,
before any amounts may be distributed from the contract, proof must be furnished
to the Company that one of the four events has occurred. The foregoing
restrictions on withdrawal do not apply in the event a participant in the ORP
transfers his or her contract value to another contract or another qualified
custodian during the period of participation in the ORP.
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<PAGE> 43
APPENDIX A
EXAMPLES OF CALCULATION OF WITHDRAWAL CHARGE
EXAMPLE 1 - Assume a single payment of $50,000 is made into the contract, there
are no transfers or partial withdrawals and the withdrawal is not made at the
end of a guarantee period. The table below illustrates three examples of the
withdrawal charges that would be imposed if the contract is completely withdrawn
during the contract year shown, based on hypothetical contract values and
assuming no market value adjustment.
<TABLE>
<CAPTION>
HYPOTHETICAL FREE AMOUNT SUBJECT TO
CONTRACT CONTRACT WITHDRAWAL WITHDRAWAL CHARGE WITHDRAWAL
YEAR VALUE AMOUNT CHARGE
-----------------------
PERCENT AMOUNT
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2 55,000 5,000(a) 50,000 6% 3,000
6 60,000 5,000(b) 55,000 2% 1,100
8 70,000 5,000 0(c) 0% 0
</TABLE>
(a) During any contract year the free withdrawal amount is 10% of the
single payment made under the contract less any prior partial
withdrawals in that contract year. Ten percent of payments less prior
withdrawals equals $5,000 ($5,000-0). Consequently, on total withdrawal
$5,000 is withdrawn free of the withdrawal charge and the withdrawal
charge is assessed against the remaining balance of $50,000 (contract
value less free withdrawal amount).
(b) The free withdrawal amount is again equal to $5,000 and the withdrawal
charge is applied to the remaining balance of $55,000 (contract value
less free withdrawal amount).
(c) There is no withdrawal charge after 7 contract years.
EXAMPLE 2 - Assume a single payment of $50,000 is made into the contract and
that no transfers are made. The table below illustrates two partial withdrawals
made during the third contract year of $2,000 and $7,000 and assumes no market
value adjustment applies.
<TABLE>
<CAPTION>
HYPOTHETICAL PARTIAL FREE AMOUNT SUBJECT
CONTRACT WITHDRAWAL WITHDRAWAL TO WITHDRAWAL WITHDRAWAL
VALUE REQUESTED AMOUNT CHARGE CHARGE
------------------------
PERCENTAGE AMOUNT
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
65,000 2,000 2,000(a) 0 5% 0
63,000 7,000 3,000(b) 4,000 5% 200
</TABLE>
(a) The free withdrawal amount during any contract year is 10% of the
single payment made under the contract less any prior withdrawals in
that contract year. Ten percent of the payment less prior withdrawals
equals $5,000 ($5,000-0). The amount requested ($2,000) is less than
the free withdrawal amount; therefore, no withdrawal charge applies.
(b) Since $2,000 has already been withdrawn in the current contract year,
the remaining free withdrawal amount during the third contract year is
$3,000. The $7,000 partial withdrawal will consist of $3,000 free of
withdrawal charge, and the remaining $4,000 will be subject to a
withdrawal charge.
Withdrawals may be subject to a market value adjustment in addition to the
withdrawal charge described above (see "MARKET VALUE ADJUSTMENT."
42
<PAGE> 44
APPENDIX B
MARKET VALUE ADJUSTMENT EXAMPLES
The market value adjustment factor is determined by the following
formula: ((1+i)/(1+j)) n/12 where:
i - The initial guaranteed interest rate or renewal guaranteed interest
rate currently being earned on the contract.
j - The guaranteed interest rate available, on the date the request is
processed by the Company, for a guarantee period with the same length
as the period remaining in the initial renewal guarantee period or
RENEWAL guarantee period. If the guarantee period of this length is not
available, the guarantee period with the next highest duration which is
maintained by the Company will be chosen.
n - The number of complete months remaining to the end of the initial
guarantee period or renewal guarantee period.
EXAMPLE 1
<TABLE>
<S> <C>
Payment $100,000
Initial guarantee period 5 years
Initial guaranteed interest
rate 5.00% per annum
Guaranteed interest rate for
three year guarantee period 6.00% per annum
Transfer to a different
guarantee period middle of contract year 3
Contract value at middle of
contract year 3 =$100,000 x 1.05(2.5)=$112,972.63
Amount transferred to a
different guarantee period =$112,972.63 x market value adjustment factor
Market value adjustment =((1+i)/(1+j))(n/12)
factor i = .05
j = .06
n = 30
=(1.05/1.06)(30/12)
=0.9765817
Amount transferred to a
different guarantee period =$112,972.63 x 0.9765817
=$110,327.00
</TABLE>
43
<PAGE> 45
EXAMPLE 2
<TABLE>
<S> <C>
Payment $100,000
Initial guarantee period 5 years
Initial guaranteed interest 5.00% per annum
rate
Guaranteed interest rate for
three year guarantee period 4.00% per annum
Transfer to a different
guarantee period middle of contract year 3
Contract value at middle of =$100,000 x 1.05(2.5)=$112,972.63
contract year 3
Amount transferred to a
different guarantee period =$112,972.63 x market value adjustment factor
Market value adjustment
factor =((1+i)/(1+j))(n/12)
i = .05
j = .04
n = 30
=(1.05/1.04)(30/12)
=1.0242121
Amount transferred to a
different guarantee period =$112,972.63 x 1.0242121
=$115,707.93
</TABLE>
44
<PAGE> 46
APPENDIX C
STATE PREMIUM TAXES
Premium taxes vary according to the state and are subject to change. In
many jurisdictions there is no tax at all. For current information, a tax
adviser should be consulted.
<TABLE>
<CAPTION>
TAX RATE
QUALIFIED NON-QUALIFIED
STATE CONTRACTS CONTRACTS
- --------------------------------------------------------------------------------
<S> <C> <C>
CALIFORNIA .............................. .50% 2.35%
DISTRICT OF COLUMBIA .................... 2.25% 2.25%
KANSAS .................................. .00 2.00%
KENTUCKY ................................ 2.00% 2.00%
MAINE ................................... .00 2.00%
MICHIGAN ................................ .00075% .00075%
NEVADA .................................. .00 3.50%
PUERTO RICO ............................. 1.00% 1.00%
SOUTH DAKOTA ............................ .00 1.25%
TEXAS ................................... .04% .04%
WEST VIRGINIA ........................... 1.00% 1.00
WYOMING ................................. .00 1.00
</TABLE>
45
<PAGE> 47
FINANCIAL STATEMENTS OF THE COMPANY
46
<PAGE> 48
AUDITED STATUTORY-BASIS
FINANCIAL STATEMENTS
NORTH AMERICAN SECURITY
LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NAWL HOLDING COMPANY, INC.)
Years ended December 31, 1996, 1995
and 1994
47
<PAGE> 49
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Audited Statutory-Basis Financial Statements
Years ended December 31, 1996, 1995 and 1994
CONTENTS
Report of Independent Auditors.................................................1
Audited Statutory-Basis Financial Statements
Balance Sheets-Statutory-Basis.................................................2
Statements of Operations-Statutory-Basis.......................................3
Statement of Changes in Capital and Deficit-Statutory-Basis....................4
Statements of Cash Flows-Statutory-Basis.......................................5
Notes to Statutory-Basis Financial Statements..................................6
48
<PAGE> 50
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Board of Directors and Shareholder
North American Security Life Insurance Company
We have audited the accompanying statutory-basis balance sheet of North American
Security Life Insurance Company (a wholly-owned subsidiary of NAWL Holding
Company, Inc.) as of December 31, 1996, and the related statutory-basis
statements of operations, changes in capital and deficit and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware, which practices
differ from generally accepted accounting principles. The variances between such
practices and generally accepted accounting principles are also described in
Note 1. The effects on the financial statements of these variances are not
reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of North American Security Life Insurance Company at December 31, 1996, or the
results of its operations or its cash flows for the year then ended.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of North American Security Life
Insurance Company at December 31, 1996 and the results of its operations and its
cash flows for the year then ended in conformity with accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 25, 1997
49
<PAGE> 51
[Coopers & Lybrand Letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
North American Security Life Insurance Company:
We have audited the accompanying statutory balance sheets of North American
Security Life Insurance Company (a wholly-owned subsidiary of North American
Life Assurance Company of North York, Canada) as of December 31, 1995 and the
related statutory statements of operations, changes in capital and deficit, and
cash flows for each of the two years in the period ended December 31, 1995. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These statutory financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Insurance Department of the State of Delaware (SAP), which
practices after 1996 (upon issuance of 1996 financial statements) differ from
generally accepted accounting principles (GAAP). The effects on the financial
statements of the variances between SAP and GAAP are not currently determinable.
In our report dated February 23, 1996, we expressed our opinion that the 1995
and 1994 financial statements, prepared using SAP, presented fairly, in all
material respects, the financial position of North American Security Life
Insurance Company as of December 31, 1995 and the results of its operations, and
its cash flows for each of the two years in the period ended December 31, 1995
in conformity with GAAP. As described in Note 1 to the financial statements,
financial statements of wholly-owned stock life subsidiaries of mutual life
insurance enterprises prepared in accordance with SAP are no longer considered
to be presented in conformity with GAAP. Accordingly, our present opinion on the
1995 and 1994 financial statements as presented herein is different from that
expressed in our previous report.
50
<PAGE> 52
In our opinion, because of the effects of the matter discussed in the two
preceding paragraphs, the financial statements referred to above do not present
fairly in conformity with GAAP, the financial position of North American
Security Life Insurance Company as of December 31, 1995, or the results of its
operations or its cash flows for each of the two years in the period ended
December 31, 1995.
In our opinion, the statutory financial statements referred to above present
fairly, in all material respects, the financial condition of North American
Security Life Insurance Company as of December 31, 1995, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995, on the basis of accounting described in Note 1. Also, in our
opinion, the related financial statements schedules, were considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 23, 1996, except for the information
in the second paragraph of Note 1 - "Basis of
Presentation," for which the date is
February 25, 1997
51
<PAGE> 53
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Balance Sheets--Statutory-Basis
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
---------------------------------
<S> <C> <C>
ADMITTED ASSETS
Investments:
Bonds $ 13,848,316 $ 16,281,452
Common stocks 30,305,498 20,097,789
Real estate 2,268,120 4,847,164
Cash and short-term investments 7,321,515 1,797,230
Policy loans 454,026
---------------------------------
Total investments 54,197,475 43,023,635
Accrued investment income 278,106 431,415
Other assets 4,008,003 4,320,909
Separate account assets 6,459,289,860 4,914,727,917
---------------------------------
Total admitted assets $6,517,773,444 $4,962,503,876
=================================
LIABILITIES, CAPITAL AND DEFICIT
Liabilities:
Aggregate reserves $ 3,674,617 $ 1,931,894
Payable to parent, subsidiaries and affiliates 405,711 3,033,665
Funds held account from reinsurers 6,000,000 9,000,000
Amount payable on reinsurance ceded 8,122,060 7,256,229
Transfers from separate accounts, net (188,238,440) (156,458,903)
Borrowed money 138,200,680 107,865,148
Accrued interest on surplus note 1,591,232 3,248,219
Asset valuation reserve 2,089,490 2,895,914
Bank overdraft 7,598,444 8,606,730
Other liabilities 9,486,084 10,239,069
Separate account liabilities 6,459,289,860 4,914,727,917
---------------------------------
Total liabilities 6,448,219,738 4,912,345,882
Capital and deficit:
Surplus note payable to Parent 20,000,000 20,000,000
Common stock (par value $1,000 per share--authorized,
3,000 shares; issued and outstanding, 2,600 shares) 2,600,000 2,600,000
Paid-in capital in excess of par value 128,633,000 110,633,000
Unassigned deficit (81,679,294) (83,075,006)
---------------------------------
Total capital and deficit 69,553,706 50,157,994
---------------------------------
Total liabilities, capital and deficit $6,517,773,444 $4,962,503,876
=================================
</TABLE>
See accompanying notes.
52
<PAGE> 54
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Statements of Operations--Statutory-Basis
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums, annuity considerations and
deposits
$1,027,373,531 $ 991,551,945 $1,139,953,302
Net investment income 5,172,160 35,909,722 30,559,559
Commissions and expense allowances on
reinsurance ceded 25,222,953 14,676,544 7,019,266
Experience refunds on reinsurance ceded 3,880,075 3,901,633 4,967,753
Reserve adjustments on reinsurance (16,460,475) (48,222,552) (6,023,746)
-------------------------------------------------------
Total revenues 1,045,188,244 997,817,292 1,176,476,134
Expenses:
Annuity benefits 381,764,918 269,688,906 206,710,232
Increase (decrease) in reserves 1,742,723 (517,160,712) 146,552,124
Increase in separate account liability 525,172,444 415,529,185 732,768,257
Commissions 82,257,073 73,593,478 81,981,046
General expenses 27,587,265 22,872,812 19,253,764
Interest expense 9,822,477 8,980,132 4,599,441
Recapture fee on reinsurance ceded 11,160,053 1,445,889 8,029,909
Initial consideration on reinsurance ceded 3,204,498 727,522,634
-------------------------------------------------------
Total expenses 1,042,711,451 1,002,472,324 1,199,894,773
Gain (loss) before federal income tax provision
and realized capital gains (losses) 2,476,793 (4,655,032) (23,418,639)
Federal income tax provision 85,252 6,415
-------------------------------------------------------
Gain (loss) after federal income tax provision 2,391,541 (4,655,032) (23,425,054)
Net realized capital gains (losses) 675,367 (2,632,953) (7,029,018)
-------------------------------------------------------
Net income (loss) $ 3,066,908 $ (7,287,985) $ (30,454,072)
=======================================================
</TABLE>
See accompanying notes.
53
<PAGE> 55
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Statements of Changes in Capital and Deficit--Statutory-Basis
<TABLE>
<CAPTION>
PAID-IN
CAPITAL IN
SURPLUS EXCESS OF PAR UNASSIGNED TOTAL CAPITAL
NOTE COMMON STOCK VALUE DEFICIT AND DEFICIT
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994 $20,000,000 $2,000,000 $ 81,233,000 $(51,510,475) $ 51,722,525
Net loss (30,454,072) (30,454,072)
Issuance of common stock 600,000 600,000
Paid-in capital in excess of par 29,400,000 29,400,000
Increase in non-admitted assets (1,859,181) (1,859,181)
Initial commission allowance on
reinsurance ceded 4,508,719 4,508,719
Decrease in asset valuation
reserves 1,976,033 1,976,033
Change in net realized gains and
losses 3,514,108 3,514,108
------------------------------------------------------------------------------
Balances at December 31, 1994 20,000,000 2,600,000 110,633,000 (73,824,868) 59,408,132
Net loss (7,287,985) (7,287,985)
Increase in non-admitted assets (958,941) (958,941)
Initial commission allowance on
reinsurance ceded (3,007,823) (3,007,823)
Decrease in asset valuation
reserves 2,640,946 2,640,946
Change in net realized gains and
losses (636,335) (636,335)
------------------------------------------------------------------------------
Balances at December 31, 1995 20,000,000 2,600,000 110,633,000 (83,075,006) 50,157,994
Net income 3,066,908 3,066,908
Paid-in capital in excess of par 18,000,000 18,000,000
Decrease in non-admitted assets 1,619,796 1,619,796
Initial commission allowance on
reinsurance ceded (3,280,000) (3,280,000)
Decrease in asset valuation
reserves 806,424 806,424
Change in net realized gains and
losses (817,416) (817,416)
------------------------------------------------------------------------------
Balances at December 31, 1996 $20,000,000 $2,600,000 $128,633,000 $(81,679,294) $ 69,553,706
==============================================================================
</TABLE>
See accompanying notes.
54
<PAGE> 56
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Statements of Cash Flows--Statutory-Basis
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Annuity considerations and deposits $1,027,373,531 $ 991,551,945 $1,139,953,302
Net investment income 2,264,748 32,128,833 28,230,341
Allowances and reserve adjustments on
reinsurance ceded 8,762,478 (33,546,008) 1,140,018
Experience refund on reinsurance ceded 3,880,075 3,901,633 4,967,753
Surrender benefits and other fund withdrawals paid (350,317,143) (232,650,150) (175,523,156)
Other benefits paid to policyholders (32,009,867) (36,860,052) (30,555,923)
Commissions, other expenses and taxes paid (109,382,073) (97,024,418) (100,210,171)
Net transfers to separate account (556,059,964) (423,952,090) (768,208,239)
Other operating expenses paid (25,079,045) (737,948,655) (12,780,263)
-----------------------------------------------------
Net cash (used for) provided by operating
activities (30,567,260) (534,398,962) 87,013,662
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds 9,607,009 763,005,273 112,385,919
Stocks 12,737,781 5,080,010 5,805,050
Mortgage loans 110,791,047 14,076,659
Real estate 1,602,063 860,375 5,950,412
Net gains on cash and short term investments 408
Cost of investments acquired:
Bonds (6,890,585) (441,405,890) (232,208,934)
Stocks (19,333,533) (10,137,862) (488,212)
Mortgage loans (136,101) (4,301,717)
Policy loans (454,026) 2,579,308 (791,723)
-----------------------------------------------------
Net cash (used for) provided by investing
activities (2,730,883) 430,636,160 (99,572,546)
OTHER CASH PROVIDED (APPLIED)
Capital and surplus paid-in 18,000,000 30,000,000
Borrowed money 30,864,052 7,000,000 70,000,000
Other sources 4,194,113 11,380,829 17,892,210
Other applications (14,235,737) (14,398,973) (103,250,950)
-----------------------------------------------------
Net other cash provided 38,822,428 3,981,856 14,641,260
-----------------------------------------------------
Net increase (decrease) in cash and short-term
investments 5,524,285 (99,780,946) 2,082,376
Cash and short-term investments at beginning of
year 1,797,230 101,578,176 99,495,800
-----------------------------------------------------
Cash and short-term investments at end of year $ 7,321,515 $ 1,797,230 $ 101,578,176
=====================================================
</TABLE>
See accompanying notes.
55
<PAGE> 57
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
North American Security Life Insurance Company (the Company) is a wholly-owned
subsidiary of NAWL Holding Company Inc. (NAWL). NAWL holds all the outstanding
shares of the Company and Wood Logan Associates, Inc. (WLA). Manufacturers Life
Insurance Company (MLI) owns all Class A shares of NAWL, representing 85% of the
voting shares of NAWL. Certain employees of WLA own all Class B shares, which
represent the remaining 15% voting interest in NAWL.
On January 1, 1996, North American Life Assurance Company, (NAL), the Company's
previous owner, merged with MLI. Effective January 1, 1996, immediately
following the merger, the Company's Parent went through a corporate
restructuring which resulted in the formation of a newly organized holding
corporation, NAWL.
The Company issues fixed and variable annuity contracts (the contracts). Amounts
invested in the fixed portion of the contracts are allocated to the General
Account of the Company (see Note 6 on fixed annuity reinsurance). Amounts
invested in the variable portion of the contracts are allocated to the separate
accounts of the Company. The separate account assets are invested in shares of
the NASL Series Trust, a no-load, open-end management investment company
organized as a Massachusetts business trust.
On June 19, 1992, the Company formed First North American Life Assurance Company
(FNA). Subsequently, on July 22, 1992, FNA was granted a license by the New York
State Insurance Department. FNA issues variable and fixed annuity contracts in
the State of New York.
NASL Financial Services Inc. (NASL Financial), a wholly-owned subsidiary of the
Company, acts as investment adviser to the NASL Series Trust and as principal
underwriter of the annuity and variable life contracts issued by the Company
and annuity contracts issued by FNA. NASL Financial has a promotional agreement
with WLA to act as the promotional agent for the sale of annuity and variable
life contracts.
56
<PAGE> 58
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known which would impact the amounts reported and
disclosed herein.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the Insurance Department of the
State of Delaware, which practices differ from generally accepted accounting
principals (GAAP).
The 1995 financial statements presented for comparative purposes were previously
described as being prepared in accordance with GAAP for stock life insurance
subsidiaries of a mutual life parent. Pursuant to FASB Interpretation 40,
Applicability of Generally Accepted Accounting Principals to Mutual Life
Insurance and Other Enterprises (FIN 40), as amended, which is effective for
1996 annual financial statements, financial statements based on statutory
accounting practices can no longer be described as prepared in conformity with
GAAP. Furthermore, financial statements prepared in conformity with statutory
accounting practices for periods prior to the effective date of FIN 40 are not
considered GAAP presentations when presented in comparative form with the
financial statements for periods subsequent to the effective date. Accordingly,
the 1995 financial statements are no longer considered to be presented in
conformity with GAAP.
The more significant variances from GAAP are as follows:
Investments: Investments in bonds are reported at amortized cost based on their
National Association of Insurance Commissioners (NAIC) rating; for GAAP, such
fixed maturity investments would be designated at purchase as held-to-maturity,
trading, or available-for-sale. Held-to-maturity fixed investments would be
reported at amortized cost, and the remaining fixed maturity investments are
reported at fair value with unrealized holding gains and losses reported in
operations for those designated as trading and as a separate component of
shareholders' equity for those designated as available-for-sale.
57
<PAGE> 59
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments in real estate are reported net of related obligations rather than
on a gross basis. Changes between cost and admitted asset investment amounts are
credited or charged directly to unassigned surplus rather than to a separate
surplus account.
The "asset valuation reserve" is determined by an NAIC prescribed formula and is
reported as a liability rather than unassigned surplus. Under GAAP, realized
capital gains and losses would be reported in the income statement on a pretax
basis in the period that the asset giving rise to the gain or loss is sold and
valuation allowances would be provided when there has been a decline in value
deemed other than temporary, in which case, the provision for such declines
would be charged to earnings.
Subsidiaries: The accounts and operations of the Company's subsidiaries are not
consolidated with the accounts and operations of the Company as would be
required under GAAP.
Policy Acquisition Costs: The costs of acquiring and renewing business are
expensed when incurred. Under GAAP, acquisition costs related to investment
products, to the extent recoverable from future gross profits, are amortized
generally in proportion to the present value of expected gross profits from
surrender charges and investment, mortality, and expense margins.
Nonadmitted Assets: Certain assets designated as "nonadmitted," principally
agents' debit balances and furniture and equipment, are excluded from the
accompanying balance sheets and are charged directly to unassigned surplus.
Annuity Considerations and Deposits: Revenues for annuity considerations and
deposits consist of the entire premium received and annuity benefits represent
the death benefits, annuitizations and withdrawals and surrenders paid and the
change in policy reserves. Under GAAP, annuity considerations and deposits
received in excess of policy charges would not be recognized as premium revenue
and annuity benefits would represent the excess of benefits paid over the policy
account value and interest credited to the account values.
Aggregate Reserves: Certain policy reserves are calculated based on statutorily
required interest and mortality assumptions rather than on estimated expected
experience or actual account balances as would be required under GAAP.
58
<PAGE> 60
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reinsurance: Policy and contract liabilities ceded to reinsurers have been
reported as reductions of the related reserves rather than as assets as would be
required under GAAP.
Commissions allowed by reinsurers on business ceded are reported as income when
received rather than being deferred and amortized with deferred policy
acquisition costs.
Federal Income Taxes: Deferred federal income taxes are not provided for
differences between the financial statement amounts and tax bases of assets and
liabilities.
Surplus Notes: Surplus notes are reported as surplus rather than as liabilities.
The effects of the foregoing variances from GAAP on the accompanying
statutory-basis financial statements have not been determined, but are presumed
to be material.
Other significant accounting policies are as follows:
INVESTMENTS AND INVESTMENT INCOME
Investments are valued in accordance with rules promulgated by the National
Association of Insurance Commissioners (NAIC). Bonds not backed by loans are
valued at amortized cost using the constant yield method.
Loan-backed bonds and structured securities are valued at amortized cost using
the constant yield method including anticipated prepayments. Prepayment
assumptions are obtained from broker dealer survey values. These assumptions are
consistent with the current interest rate and economic environment. The
retrospective method is being used to value all securities.
Investment income is recognized on the accrual basis. Unrealized gains or losses
on investments are recorded in unassigned deficit. Realized gains or losses on
investments sold are determined on the basis of the specific identification
method.
Common stocks, excluding investments in subsidiaries, are valued at market
value. The Company's insurance subsidiary is reported at equity in the
underlying statutory-basis of its net assets, and the Company's noninsurance
subsidiary is reported at the GAAP-basis of its net assets. Real estate acquired
in satisfaction of debt is stated at the lower of the appraised market value or
the outstanding principal loan balance plus accrued interest and foreclosed
costs.
59
<PAGE> 61
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 1996, 1995 and 1994, the Company transferred, in satisfaction of debt,
mortgages with statement values of $0, $2,405,052 and $6,407,174, respectively,
to foreclosed real estate. Subsequently, in 1996, 1995 and 1994, the Company
wrote-down $929,713, $1,360,620, and $0, respectively, on these properties to
reflect the carrying value at the lower of the current market valuation or the
value transferred at the time of foreclosure. At year end, the Company held
$2,268,120 of foreclosed real estate at adjusted book value which approximates
market value.
SHORT-TERM INVESTMENTS
Short-term investments generally consist of treasury bills, commercial paper and
money market instruments whose maturities at the time of acquisition are one
year or less. Short-term instruments are valued at cost, which approximates
market value.
ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve (AVR) is designed to mitigate the effect of
valuation and credit related losses on all invested assets with risk of loss
including mortgages, real estate, fixed income securities, and common stocks.
Changes in the AVR are accounted for as a direct increase or decrease in
unassigned surplus.
The Interest Maintenance Reserve (IMR) captures realized capital gains and
losses which result from changes in interest rate for all fixed income
securities and amortizes these capital gains and losses into investment income
over the original life of the investments sold. During 1995, the cumulative net
gains were released from IMR in connection with a reinsurance treaty whereby the
Company reinsured all of its fixed annuity business (see Note 6). This
accounting was approved by the State of Delaware Department of Insurance as a
permitted practice. Total net gains (losses) of $(59,933) were transferred into
IMR and $541,484 was amortized and included in net investment income in 1994.
60
<PAGE> 62
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMIUMS, ANNUITY CONSIDERATIONS AND DEPOSITS AND RELATED EXPENSES
Premiums, annuity considerations and deposits are recognized as revenue when
received. Expenses, including acquisition costs such as commissions and other
costs in connection with acquiring new business, are charged to operations as
incurred.
AGGREGATE RESERVES
The reserves, developed using accepted actuarial methods, have been established
and maintained on the basis of published mortality tables and prescribed
interest rates per the National Association of Insurance Commissioners' standard
valuation law, as adopted by the State of Delaware. The method used for the
valuation of annuities is the Commissioner's Annuity Reserve Valuation Method
(CARVM). Under this method the reserve is the highest present value of all
future guaranteed cash surrender values.
Surrender values on policies do not exceed the corresponding reserves.
Additional reserves are established when the results of cash flow testing under
various interest rate scenarios indicate the need for such reserves.
SEPARATE ACCOUNT
Separate account assets and liabilities reported in the accompanying balance
sheets represent mutual funds that are separately administered for the
exclusive benefit of variable annuity and variable life contractholders and are
reported at fair market value. Since the contractholders receive the full
benefit and bear the full risk of the separate account investments, the income,
realized and unrealized gains and losses from such investments, is offset by an
equivalent change in the liabilities related to the separate accounts.
Transfers from separate account, net, primarily represents the difference
between the contract owner's account value and the CARVM reserve. There are no
reconciling items between the increase in separate account liability as shown
on the statement of operations and the transfers as reported in the Summary of
Operations of the Separate Account Statement. Fees charged on separate account
deposits are included in other income.
61
<PAGE> 63
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Annuity and variable life premiums, considerations and deposits for the separate
accounts, net of reinsurance, are $1,027,373,531, $728,682,163 and $975,538,582
for 1996, 1995 and 1994, respectively.
UNCONSOLIDATED SUBSIDIARIES
The Company records its equity in the earnings of unconsolidated subsidiaries as
net investment income. The Company owns 100% of the outstanding common stock of
First North American Life Assurance Company and NASL Financial Services, Inc.
Summarized financial data for unconsolidated subsidiaries at December 31, 1996
and 1995 is shown below:
<TABLE>
<CAPTION>
1996 1995
----------------------
(In thousands)
<S> <C> <C>
Total assets at year end $471,166 $318,326
Total liabilities at year end 440,862 304,409
Net income 3,175 1,220
</TABLE>
FEDERAL INCOME TAXES
The Company will participate as a member of the NAWL affiliated group, filing a
consolidated federal income tax return. The Company will file separate state
returns.
The method of allocation between companies is subject to a tax sharing
agreement. The tax liability is allocated to each member on a pro rata basis
based on the relationship the member's tax liability (computed on a separate
return basis) bears to the tax liability of the consolidated group. The tax
charge to the Company shall not be more than the Company would have paid on a
separate return basis.
Income before federal income taxes differs from taxable income principally due
to policy acquisition costs, differences in annuity reserves for tax and
financial reporting purposes, the equity earnings of unconsolidated subsidiaries
and reinsurance allowances.
62
<PAGE> 64
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
2. PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the Insurance Department of
the State of Delaware. "Prescribed" statutory accounting practices include state
laws, regulations, and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices encompass
all accounting practices that are not prescribed, such practices may differ from
state to state, may differ from company to company within a state, and may
change in the future. The NAIC currently is in the process of recodifying
statutory accounting practices, the result of which is expected to constitute
the only source of "prescribed" statutory accounting practices. Accordingly,
that project, which is expected to be completed in 1997, will likely change, to
some extent, prescribed statutory accounting practices, and may result in
changes to the accounting practices that the Company uses to prepare its
statutory financial statements. The impact of any such changes on the Company's
statutory-surplus cannot be determined at this time and could be material.
3. INVESTMENTS
The major components of investment income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Amortization of IMR $11,040,025 $ 541,484
Equity in undistributed income
(loss) of subsidiaries $ 3,086,798 (482,580) 737,688
Bonds 719,462 18,046,504 16,182,157
Common stock 34,993 137,862 498,222
Short-term investments 199,114 2,642,678 1,664,563
Mortgage loans 5,420,613 12,026,724
Real estate 774,673 1,071,080 1,248,043
Policy loan interest (32,300) 10,658
Interest rate swap 1,632,000
Investment expenses (1,274,880) (1,934,160) (2,349,980)
-------------------------------------------
Net investment income $ 5,172,160 $35,909,722 $30,559,559
===========================================
</TABLE>
63
<PAGE> 65
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The amortized and estimated fair value of investments in debt securities at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996:
U.S. Treasury securities and
obligations of U.S. Government
agencies
$ 6,916 $144 $ 27 $ 7,033
Corporate debt securities 6,009 2 17 5,994
Mortgage-backed securities 923 19 4 938
-------------------------------------------
Totals $13,848 $165 $ 48 $13,965
===========================================
DECEMBER 31, 1995:
U.S. Treasury securities and
obligations of U.S. Government
agencies
$ 8,998 $362 $ 3 $ 9,357
Corporate debt securities 3,672 125 3 3,794
Mortgage-backed securities 3,611 195 3,806
-------------------------------------------
Totals $16,281 $682 $ 6 $16,957
===========================================
</TABLE>
64
<PAGE> 66
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of debt securities at December 31,
1996 by the contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers or lenders may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
---------------------------
(In thousands)
<S> <C> <C>
Due in one year or less $ 7,136 $ 7,156
Due after one year through five years 3,494 3,539
Due after five years through ten years 1,938 1,914
Due after ten years 357 418
Mortgage-backed securities 923 938
---------------------------
Total $13,848 $13,965
===========================
</TABLE>
The proceeds from sales of debt securities for the years ended December 31,
1996, 1995 and 1994 were $8,593,009, $743,955,966 and $74,622,566, respectively.
In 1996, gross gains and losses recognized on the sales were $338,975 and
$1,775, respectively. In 1995, gross gains and losses on the sales were
$10,452,916 and $2,035,657, respectively. In 1994, gross gains and losses on the
sales were $1,600,852 and $1,660,785, respectively. Net realized gains (losses)
of $0, $8,417,259 and $(59,933) for the years ended December 31, 1996, 1995 and
1994, respectively, were transferred to IMR.
Debt securities with a carrying value of $5,458,635 and $5,600,444 at December
31, 1996 and 1995, respectively, were on deposit with, or in custody accounts on
behalf of certain state insurance departments.
4. FEDERAL INCOME TAXES
At December 31, 1996 and 1995, the Company had operating loss carryforwards of
approximately $32,000,000 and $36,000,000, respectively, which expire between
2007 and 2010. During 1996, the Company utilized approximately $4,000,000 in net
operating loss carryforwards to reduce taxable income.
65
<PAGE> 67
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
5. LIFE AND ANNUITY ACTUARIAL RESERVES
The Company issues flexible premium deferred combination fixed and variable
annuity contracts and variable life insurance contracts. Reserves for these
contracts are established using the Commissioners Annuity Reserve Valuation
Method (CARVM) and the Commissioner's Reserve Valuation Method (CRVM) as
adopted by the State of Delaware Insurance Department. The reserves for the
fixed portion of the contracts are subject to an indemnity reinsurance
agreement and the reserves for the variable portion of the contracts are held
in the separate account. The Company has reinsured its Minimum Guaranteed Death
Benefit risks, and accordingly, is holding no reserve for this risk, which
relates to the excess of Death Benefit over policyholder Account Value. The
Company does not offer surrender values in excess of the reserves.
Withdrawal characteristics of Annuity Actuarial Reserves and Deposit Liabilities
are as follows:
<TABLE>
<S> <C> <C>
Subject to discretionary withdrawal with market
value adjustment
$ 385,506,134 5.64%
Subject to discretionary withdrawal at book value
less surrender charge (5% or more) 139,439,719 2.04
Subject to discretionary withdrawal at market value 6,269,263,219 91.75
Subject to discretionary withdrawal at book value 18,704,535 .27
------------------------
Subtotal 6,812,913,607 99.70
Not subject to discretionary withdrawal provision 20,342,476 .30
------------------------
Total annuity actuarial reserve and deposit fund
liabilities
6,833,256,083 100%
Expense gap reserve 1,298,797
Reinsurance ceded (559,828,843)
------------------------
Total net annuity actuarial reserves and deposit
funds liabilities $6,274,726,037
========================
</TABLE>
6. REINSURANCE
Reinsurance premiums and benefits paid or provided are accounted for on bases
consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts. Reinsurance transactions have been
entered into primarily to improve cash flow and statutory capital.
66
<PAGE> 68
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
6. REINSURANCE (CONTINUED)
Effective June 30, 1995, an indemnity coinsurance agreement was entered into
between the Company and Peoples Security Life Insurance Company (Peoples or the
Reinsurer), a AAA rated subsidiary of the Providian Corporation, to reinsure
both in force and new fixed annuity business written by the Company.
The indemnity aspects of the agreement provide that the Company remains liable
for the contractual obligations whereas the Reinsurer agrees to indemnify the
Company for any contractual claims incurred. The coinsurance aspects of the
agreement require the Company to transfer all assets backing the fixed annuity
obligations to the Reinsurer together with all future fixed premiums received by
the Company for fixed annuity contracts. Once transferred, the assets belong to
the Reinsurer. In exchange, the Reinsurer reimburses the Company for all claims
and provides expense allowances to cover commissions and other costs associated
with the fixed annuity business.
The Reinsurer is responsible for investing the asset and is at risk for any
potential investment gains and losses. There is no recourse back to the Company
if investment losses are incurred. Under this agreement, the Company will
continue to administer the fixed annuity business for which it will earn an
expense allowance. The Company has set up a reserve of $1,298,797 and $1,931,894
at December 31, 1996 and 1995, respectively, to recognize that expense
allowances received from Providian under this indemnity coinsurance agreement do
not fully reimburse the Company for overhead expenses allocated to the fixed
annuity line of business.
The reinsurance agreement required the Company to transfer to the Reinsurer a
consideration of $726.7 million in cash or securities, to cover all in force
business as of June 30, 1995.
The financial impact of the reinsurance agreement was as follows (in millions):
<TABLE>
<S> <C>
Net loss from operations:
Consideration paid to reinsurer $(726.7)
Net reserves reinsured 725.1
Expense gap reserve (1.9)
-------
(3.5)
Capital and surplus adjustments:
Release of IMR 11.0
Market loss on sale of mortgages (2.2)
Release of bond and mortgage asset valuation reserve 4.7
-------
Net impact on surplus $ 10.0
=======
</TABLE>
67
<PAGE> 69
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
6. REINSURANCE (CONTINUED)
Effective July 1, 1995 and August 1, 1995, the Company entered into treaties
with the Connecticut General Life Insurance Company (CIGNA) and Swiss Re Life
Insurance Company, respectively, to reinsure its Minimum Death Benefit Guarantee
risks. Each company has assumed 50% of the risk. In addition, the Company
reinsured 50% of its risk related to the waiving of surrender charges at death
with CIGNA. The Company is paying the reinsurers an asset based premium, the
level of which varies with both the amount of exposure to this risk and the
realized experience.
Effective November 1, 1995, the Company entered into a treaty with Transamerica
Occidential Life Insurance Company. Transamerica will reinsure a 50% quota share
of the variable portion of the Company's VLI contracts. In addition,
Transamerica will also reinsure 80% of this product's net amount at risk in
excess of the Company's retention limit of $100,000 on a YRT basis.
During 1984, the Company assumed from its Parent, NAL, approximately 26% of
NAL's ordinary and group vested annuity contracts issued in the United States
prior to 1983. In December 1989, the percentage assumed was increased to 90%. On
March 31, 1995, this agreement was 100% recaptured. To effect this recapture,
the Company paid NAL $1,445,889. At December 31, 1996 and 1995, the Company had
no liability for future policy benefits under this contract.
Effective October 1, 1988, the Company ceded 18% of its variable annuity
contracts (policy from 203-VA) to its parent NAL under a modified coinsurance
agreement. Under this agreement, NAL provides the Company with an expense
allowance on reinsured premiums which is repaid out of a portion of future
profits on the business reinsured. The agreement provides full risk transfer of
mortality, persistency and investment performance to the reinsurer with respect
to the portion reinsured. Effective July 1, 1992, the quota share percentage was
increased to 36%.
On December 31, 1993, the Company entered into a modified coinsurance agreement
with an ITT Lyndon Life, a non-related third party to cede the remaining 64% of
the Company's variable annuity contracts (policy form 203-VA) and 95% of the
Company's new variable annuity contract series issued in 1994 (policy form Ven
10). The Company received approximately $25 million in cash representing
withheld premiums of $15 million and $10 million ceding commission. The amounts
of withheld premiums will be repaid with interest over five years. The ceding
commission is payable out of future profits generated by the business reinsured.
68
<PAGE> 70
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
6. REINSURANCE (CONTINUED)
Effective December 31, 1994, the Company recaptured its reinsurance with NAL.
Upon recapture, 1994 operating results were negatively impacted by a one-time
recapture fee of approximately $6.5 million. Concurrent with this transaction,
the Company ceded 31% of the recaptured contracts (policy form 203-VA) to ITT
Lyndon Life bringing the portion of these contracts reinsured by ITT Lyndon to
95%. In return, the Company received consideration of $5.2 million which is
reflected as a surplus adjustment to be amortized into income in future years.
During 1996, $3.0 million was amortized into income.
Effective December 31, 1994, the Company entered into an indemnity reinsurance
agreement with Paine Webber Life to reinsure a portion of its policy forms
207-VA, VFA, VENTURE.001, and VENTURE.003. The quota share percentage varies
between 15% and 35% depending on the policy form. The form of reinsurance is
modified coinsurance and only covers the variable portion of contracts written
by Paine Webber brokers. The Company received an allowance of $1,580,896 to
complete this transaction. All elements of risk (including mortality,
persistency, investment performance) have been transferred with the exception of
the minimum death benefit guarantee. The Company receives an allowance to cover
the expected cost of the minimum death benefit guarantee.
In the event of insolvency of a reinsurer, the Company remains primarily liable
to its policyholders. Failure of reinsurers to honor their obligations could
result in losses to the Company and, accordingly, the Company periodically
monitors the financial condition of its reinsurers.
The Company has not entered into any reinsurance agreements in which the
reinsurer may unilaterally cancel any reinsurance for reasons other than
nonpayment of premiums or other similar credits or a significant change in the
ownership of the Company. The Company does not have any reinsurance agreements
in effect in which the amount of losses paid or accrued through December 31,
1996 would result in a payment to the reinsurer of amounts which, in the
aggregate and allowing for offset of mutual credits from other reinsurance
agreements with the same reinsurer, exceed the total direct premiums collected
under the reinsured policies.
The Company has estimated that the aggregate reduction in surplus that would
occur if all reinsurance agreements currently in effect were terminated would be
$14,178,002 at December 31, 1996.
69
<PAGE> 71
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
7. RELATED-PARTY TRANSACTIONS
In connection with the fixed annuity indemnity coinsurance agreement entered
into in 1995 (see Note 6), the Company pooled its mortgage portfolio (book value
of approximately $106 million) and transferred a senior participation interest
to an affiliate of the reinsurer. The senior interest was transferred for a
purchase price of approximately $72 million and entitles an affiliate of the
reinsurer to 100% of the cash flows produced by the portfolio until they recover
in full the purchase price with interest at a rate of 7.52%. The remaining
residual interest was transferred to First North American Realty, Inc., a
wholly-owned subsidiary of the former Parent for a purchase price of $33
million. As a result of the sale of the senior and residual interests in the
Company's mortgages, the Company has no further economic interest in any
mortgages and hence has reported zero mortgage loan assets on its balance sheet
as of December 31, 1995.
The Company utilizes various services administered by MLI in 1996 and NAL for
1995 and 1994, such as payroll and investment accounting. The charges for these
services were approximately $6,053,000, $295,000 and $234,000 in 1996, 1995 and
1994, respectively. During 1996, MLI changed the allocation method of expenses
subsequent to the merger with NAL. At December 31, 1996 and 1995, the Company
had a net liability to MLI of $4,348,511 and NAL of $5,928,889, respectively.
The Company's annuity and insurance contracts are distributed through NASL
Financial pursuant to an underwriting agreement. NASL Financial has entered into
an agreement with Wood Logan Associates, an affiliate, to act as the promotional
agent for the sale of annuity and variable life contracts. At December 31, 1996,
the Company had a payable to NASL Financial for $999,328 and at December 31,
1995, the Company had a receivable from NASL Financial for $881,119.
The Company provides various services and personnel to FNA for accounting,
actuarial, administration and systems support. These services are allocated on a
pro rata basis and charged as incurred. The total costs allocated for these
services in 1996, 1995 and 1994 were approximately $661,000, $456,000 and
$418,000, respectively. At December 31, 1996, the Company had a net receivable
from FNA for $1,336,725.
The financial statements have been prepared from the records maintained by the
Company and may not necessarily be indicative of the financial conditions or
results of operations that would have occurred if the Company had been operated
as an unaffiliated corporation (see also Notes 1, 3, 6, 8, 9 and 12 for
additional related-party transactions).
70
<PAGE> 72
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
8. BORROWED MONEY
The Company has an unsecured line of credit with State Street Bank and Trust in
the amount of $10,000,000, bearing interest based on the bank's money market
rate plus 50 basis points. There were no outstanding balances at December 31,
1996 and December 31, 1995. Interest expense was approximately $244,000,
$76,000 and $81,600 in 1996, 1995 and 1994, respectively.
The Company has a revolving credit line with MLI. The original term of the
agreement was seven years. Each additional borrowing under the agreement has a
seven year term from the date of each additional borrowing. The balance
outstanding at December 31, 1996 is $137,864,052. Principal and interest is
payable in quarterly installments. The interest rate is Libor plus 32.5 basis
points. Accrued interest at December 31, 1996 is $336,627.
During 1995, the Company had a $150 million revolving credit and term loan
agreement (the Loan) with the Canadian Imperial Bank of Commerce and Deutsche
Bank AG. The amount outstanding at December 31, 1995 was in the form of a term
loan of $107 million. In April of 1996, the loan was paid in full and the credit
line with MLI described above was established.
On December 20, 1994, the Company received $20,000,000 from its former Parent in
the form of a surplus note agreement with interest at 8%. This surplus note
agreement was assumed by the Parent upon the merger described in Note 1. The
note and accrued interest are subordinated to payments due to policyholders and
other claimants. Principal and interest payments can be made only upon prior
approval of the Insurance Department of the State of Delaware. Interest accrued
at December 31, 1996 and 1995 was $1,591,232 and $3,248,219, respectively.
Interest accrued at December 31, 1995 was paid during 1996.
9. DEFERRED COMPENSATION AND RETIREMENT PLANS
Prior to December 31, 1995, NAL maintained the NALACO Pension Plan (the Plan), a
defined benefit pension plan for all U.S. employees which vests at five years of
service. Sponsorship of this plan was assumed by MLI at the time of the merger.
Benefit payout is a function of years of service and average earnings during the
employee's last five years of service. MLI's funding policy is to contribute
annually the normal cost up to the maximum amount that can be deducted for
federal income tax purposes and to charge each subsidiary for its allocable
share of such contributions based on a percentage of payroll. No pension cost
was allocated to the Company in 1996 or 1995 as the plan was subject to the full
funding limitation under the Internal Revenue Code. At December 31,
71
<PAGE> 73
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
9. DEFERRED COMPENSATION AND RETIREMENT PLANS (CONTINUED)
1996, the Plan's total accumulated benefit obligation determined in accordance
with SFAS No. 87 and valued at January 1, 1996 based on an assumed interest rate
of 7% was $10,183,862, including vested benefits of $10,094,294 and fair value
of assets of $24,427,811.
The Company sponsors a defined contribution retirement plan pursuant to
regulation 401(k) of the Internal Revenue Code. All employees on September 1,
1990 were eligible to participate. Employees hired after September 1, 1990 will
be eligible after one year of service and attaining age 21. The Company
contributes two percent of base pay plus fifty percent of the employee savings
contribution. The employee savings contribution is limited to six percent of
base pay. The Company contributed $298,997, $203,248 and $167,148 in 1996, 1995
and 1994, respectively.
10. LEASES
The Company leases its office space and various office equipment under operating
lease agreements. For the years ended December 31, 1996, 1995 and 1994, the
Company incurred rent expense of $1,144,402, $1,388,780 and $840,233,
respectively. The Company negotiated a ten-year lease for new office space which
commenced in March 1992. In connection with the lease, the Company was required
to deposit $1,500,000 in an escrow account as security toward fulfilling the
future lease commitment. The balance of the escrow at December 31, 1996 is
$900,000.
The minimum lease payments associated with the office space and various office
equipment under operating lease agreements is as follows:
<TABLE>
<CAPTION>
MINIMUM
LEASE
PAYMENTS
----------
<S> <C>
Year ended:
1997 $1,180,993
1998 1,204,160
1999 1,199,923
2000 1,197,368
2001 1,197,368
Remaining years 1,185,908
----------
Total $7,165,720
==========
</TABLE>
72
<PAGE> 74
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
10. LEASES (CONTINUED)
The Company also guarantees FNA's office space lease which has an annual cost to
FNA of approximately $80,000.
11. INTEREST RATE SWAP
The Company entered into an interest rate swap in 1995 with Canadian Imperial
Bank of Commerce and Deutsche AG for the purpose of minimizing exposure to
fluctuations in interest rates on a portion of the debt outstanding at that
time. During 1996, the Company terminated this agreement and recognized a gain
of $1.6 million which is recorded as a component of investment income.
12. GUARANTEE AGREEMENT
A guarantee agreement continues in effect, whereby the Parent has agreed to
unconditionally guarantee that it will, on demand, make funds available to the
Company for the timely payment of contractual claims made under fixed annuity
and variable life contracts issued by the Company. The guarantee covers all
outstanding fixed annuity contracts, including those issued prior to the date
of the guarantee agreement.
13. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
"fair value" disclosures for financial instruments in the accompanying financial
statements and notes thereto:
Cash and Short-term investments: The carrying amounts reported in the
accompanying balance sheets for these financial instruments approximate their
fair values.
Bonds: Fair values for bonds are based on quoted market prices or dealer quotes,
where applicable. For bonds not actively traded, fair values are estimated using
values obtained from independent pricing services.
Assets and Liabilities of Separate Accounts: Separate account assets and
liabilities are reported at estimated fair value in the Company's balance
sheets.
73
<PAGE> 75
North American Security Life Insurance Company
(a Wholly-Owned Subsidiary of NAWL Holding Company, Inc.)
Notes to Statutory-Basis Financial Statements (continued)
13. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Aggregate Reserves: Fair values of the Company's liabilities under contracts not
involving significant mortality risk (deferred annuities) are stated at the cost
the Company would incur to extinguish the liability, i.e., the cash surrender
value.
The following sets forth a comparison of the carrying values and fair values of
the Company's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Bonds $ 13,848,316 $ 13,965,000 $ 16,281,452 $ 16,957,000
Common stocks 30,305,498 30,305,498 20,097,789 20,097,789
Cash and short-term investments 7,321,515 7,321,515 1,797,230 1,797,230
Assets held in separate accounts 6,459,289,860 6,459,289,860 4,914,727,917 4,914,727,917
LIABILITIES:
Aggregate reserves for deferred
annuities 3,674,617 3,674,617 1,931,894 1,931,894
Borrowed money 138,200,680 138,200,680 107,865,148 107,865,148
Liabilities held in separate
accounts 6,271,051,420 6,459,289,860 4,758,269,014 4,914,727,917
</TABLE>
74
<PAGE> 76
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NAWL HOLDING COMPANY, INC.)
<TABLE>
Balance Sheets - Statutory Basis
<CAPTION>
June 30, 1997 December 31, 1996
-------------- -----------------
ASSETS (unaudited)
<S> <C> <C>
Investments
Bonds $ 14,031,089 $ 13,848,316
Real estate 0 2,268,120
Common stock 32,387,193 30,305,498
Policy loans 1,226,284 454,026
Cash and short-term investments 9,030,464 7,321,515
-------------- --------------
Total investments 56,675,030 54,197,475
Accrued investment income 286,392 278,106
Other assets 3,663,635 4,008,003
Separate account assets 7,695,485,959 6,459,289,860
-------------- --------------
Total assets 7,756,111,016 6,517,773,444
============== ==============
LIABILITIES
Aggregate reserves 4,806,099 3,674,617
Transfers from separate account, net (202,899,079) (188,238,440)
Borrowed money 163,879,309 138,200,680
Accrued interest on surplus note 2,391,232 1,591,232
Payable to parent 0 405,711
Funds held account from reinsurers 6,000,000 6,000,000
Asset valuation reserve 2,679,874 2,089,490
Bank overdraft 0 7,598,444
Amounts payable on reinsurance ceded 2,209,348 8,122,060
Other liabilities 10,837,656 9,486,084
Separate account liabilities 7,695,485,959 6,459,289,860
-------------- --------------
Total liabilities 7,685,390,398 6,448,219,738
============== ==============
Capital and deficit
Surplus note payable to parent 20,000,000 20,000,000
Common stock (shares authorized: 3,000; issued and outstanding
2,600; par value $1,000) 2,600,000 2,600,000
Paid-in capital excess of par value 128,633,000 128,633,000
Unassigned deficit (80,512,382) (81,679,294)
-------------- --------------
Total capital and deficit 70,720,618 69,553,706
-------------- --------------
Total liabilities, capital and deficit $7,756,111,016 $6,517,773,444
============== ==============
</TABLE>
75
<PAGE> 77
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NAWL HOLDING COMPANY, INC.)
<TABLE>
Statements of Operations - Statutory Basis
(Unaudited)
<CAPTION>
Year to date
6/30/97 6/30/96
------------ ------------
<S> <C> <C>
Revenues:
Annuity considerations and deposits $724,898,896 $543,077,280
Net investment income 2,949,912 2,345,499
Commissions and expense allowances on 12,898,845 12,022,196
reinsurance ceded
Reinsurance experience refund 1,279,302 2,004,049
Reserve adjustments on reinsurance (26,681,632) (5,063,327)
------------ ------------
Total revenues 715,345,323 554,385,697
Expenses:
Annuity benefits 244,227,711 179,055,221
Increase in reserves 1,131,481 303,178
Increase in separate account liability 389,773,577 310,296,689
Commissions 49,694,796 42,921,334
General expenses 16,626,499 12,364,932
Interest expense 4,860,563 4,661,721
Recapture fee on reinsurance ceded 3,990,086 8,544,363
Reinsurance premium 1,590,900 1,126,584
------------ ------------
Total expenses 711,895,613 559,274,022
Gain(loss) before realized capital losses
and tax provision 3,449,710 (4,888,325)
Realized capital (loss) gain (2,137,449) 160,704
------------ ------------
Gain(loss) before tax provision 1,312,261 (4,727,621)
Tax provision 142,414 0
------------ ------------
Net gain(loss) $ 1,169,847 $ (4,727,621)
============ ============
</TABLE>
76
<PAGE> 78
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NAWL HOLDING COMPANY, INC.)
<TABLE>
Statement of Changes in Capital and Deficit - Statutory Basis
(Unaudited)
<CAPTION>
Paid-In Capital in
Surplus Note Common Excess of Par Unassigned Total Capital
Stock Value Deficit and Deficit
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 $20,000,000 $2,600,000 $128,633,000 $(81,679,294) $69,553,706
Net loss 1,169,847 1,169,847
Change in net unrealized capital 2,136,683 2,136,683
losses
Change in asset valuation reserve (590,384) (590,384)
Increase in non-admitted assets 90,766 90,766
Initial commission allowance on
reinsurance ceded (1,640,000) (1,640,000)
------------------------------------------------------------------------------------
Balances at June 30, 1997 $20,000,000 $2,600,000 $128,633,000 $(80,512,382) $70,720,618
====================================================================================
</TABLE>
77
<PAGE> 79
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF
NAWL HOLDING COMPANY, INC.)
<TABLE>
Statements of Cash Flows - Statutory Basis
(Unaudited)
<CAPTION>
For the six months ended June 30,
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Annuity considerations and deposits $ 724,898,896 $ 543,077,280
Allowances & reserve adjustments on reinsurance ceded (13,782,787) 6,958,869
Net investment income 895,865 655,841
Experience refund on reinsurance ceded 1,279,302 -
Surrender benefits and other fund withdrawals paid (215,445,991) (161,356,722)
Other benefits paid to policyholders (28,355,130) (18,715,936)
Commissions, other expenses & taxes paid (66,791,533) (54,948,360)
Net transfers to separate account (404,144,157) (323,517,613)
Other operating expenses paid (10,731,610) (14,332,662)
------------- -------------
Net cash used by operating activities (12,177,145) (22,179,303)
INVESTING ACTIVITIES
Proceeds from investments sold, matured or repaid:
Bonds 3,538,536 8,691,439
Stocks 5,292,561
Real estate 2,268,120 961,565
Cost of investments acquired:
Bonds (3,758,006) (600,558)
Stocks (18,306,983)
Policy loans (772,258) (13,001)
------------- -------------
Net cash provided by investing activities 1,276,392 (3,974,977)
------------- -------------
OTHER CASH PROVIDED (APPLIED):
Capital and surplus paid-in - 15,000,000
Borrowed money 25,635,948 22,322,778
Other sources 4,529,688 1,751,008
Other applications (17,555,934) (13,279,319)
------------- -------------
Net other cash provided (used) 12,609,702 25,794,467
------------- -------------
Net change in cash and short-term investments 1,708,949 (359,813)
Cash and short-term investments, beginning of period 7,321,515 1,797,230
------------- -------------
Cash and short-term investments, end of period $ 9,030,464 $ 1,437,417
============= =============
</TABLE>
78
<PAGE> 80
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
NOTES TO THE FINANCIAL STATEMENTS
UNAUDITED
The accompanying unaudited financial statements of North American Security
Life Insurance Company (the Company) have been prepared in accordance with
statutory accounting principles and generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation of
the Company's financial position and results of operations have been made.
These financial statements should be read in conjunction with the audited
financial statements contained in the Company's annual report on Form 10-K. The
results of operations for the three and six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
Financial results have been prepared on the basis of statutory accounting
practices which until December 31, 1995, were considered by the insurance
industry to be in accordance with generally accepted accounting principles
(GAAP) for mutual life insurance companies and their wholly-owned subsidiaries.
Commencing January 1, 1996, financial statements prepared on the basis of
statutory accounting practices will no longer be considered in accordance with
GAAP. Since the Company has yet to complete its conversion to GAAP, the
accompanying statements were prepared on the statutory basis of accounting.
NASL Financial Services, Inc. ("NASL Financial"), the investment adviser to the
North American Funds (the "Fund"), and its parent, North American Security Life
Insurance Company, have signed a binding letter of intent with CypressTree
Investments, Inc. ("Cypress") pursuant to which it is expected that Cypress will
purchase a portion of NASL Financial's business relating to the rendering of
investment advisory and distribution services to the Fund. The completion of the
transaction is subject to several conditions, including (i) the signing of a
definitive agreement regarding the sale, (ii) the approval of an advisory
agreement between the Fund and CypressTree Asset Management Corporation, Inc.
("CAM"), an affiliate of Cypress, by the Board of Trustees of the Fund and
shareholders of each Fund portfolio, (iii) the approval of a subadvisory
agreement between CAM and the current subadviser to each Fund portfolio by the
Board of Trustees of the Fund and the shareholders of the applicable Fund
portfolio and (iv) the requirement that the aggregate net asset value of the
Fund at the closing be not less than $750 million. During the second quarter of
1997, a definitive agreement was signed and the Board of Trustees approved the
advisory agreement and each of the subadvisory agreements. A shareholders
meeting is scheduled for September 24, 1997 at which meeting the shareholders
will vote on proposals to approve the advisory agreement and the subadvisory
agreements. Cypress does not currently intend to recommend any changes to the
existing subadvisers to the Fund or any fees or expense limitations applicable
to the Fund. The closing for the transaction is expected to occur on or before
September 30, 1997. Cypress, located in Boston, Massachusetts was formed in
1996 to acquire, advise and distribute mutual funds through broker-dealers,
banks and other intermediaries. Management believes divestiture of the retail
mutual fund business will not have a material effect on the Company's financial
condition.
79
<PAGE> 81
Investments
- -----------
The Company has a coinsurance agreement that reinsures 100% of all products
fixed investment option. Hence, the general account investments held by the
Company support the surplus account and specific state requirements for
securities held on account for the benefit of policyholders.
The amortized and estimated fair value of investments in debt securities at June
30, 1997 is as follows:
<TABLE>
<CAPTION>
Gross Gross
(in thousands) Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US
Government agencies $ 7,288 $134 $ 26 $7,396
Corporate debt securities 6,303 0 22 6,281
Mortgage-backed securities 440 20 0 460
------- ---- ---- -------
Totals $14,031 $154 $48 $14,137
======= ==== ==== =======
</TABLE>
80
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<PAGE> 83
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee $60,606.06
Printing $12,000.00*
Edgarization Expenses $ 5,500.00*
Accounting fees and expenses $20,000.00*
Legal fees and expenses $13,000.00*
</TABLE>
*Estimate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 9 of the Articles of Incorporation of the Company provides as follows:
NINTH: A director of this corporation shall not be liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a director
except to the extent such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended. Any repeal or modification of the foregoing
sentence shall not adversely affect any right or protection of a director of the
corporation existing hereunder with respect to any act or omission occurring
prior to such repeal or modification.
Article XIV of the By-laws of the Company provides as follows:
Each Director or officer, whether or not then in office, shall be
indemnified by the Company against all costs and expenses reasonably incurred by
or imposed upon him or her, including legal fees, in connection with or
resulting from any claim, action, suit or proceeding, whether civil, criminal or
administrative, in which he or she may become involved as a party or otherwise,
by reason of his or her being or having been a Director or officer of the
Company.
(1) Indemnity will not be granted to any Director or officer with respect
to any claim, action, suit or proceeding which shall be brought against such
Director or officer by or in the right of the Company, and
(2) Indemnification for amounts paid and expenses incurred in settling
such action, claim, suit or proceeding, will not be granted, until it shall be
determined by a disinterested majority of the Board of Directors or by a
majority of any disinterested committee or group of persons to whom the question
may be referred by the Board, that said Director or officer did indeed act in
good faith and in a manner he or she reasonably believed to be in, or not
adverse, to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonably cause to believe that his or her
conduct was legal, and that the payment of such costs, expenses, penalties or
fines is in the interest of the Company, and not contrary to public policy or
other provisions of law.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendre or its equivalent, shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in, or not adverse, to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Indemnification shall be made by the corporation upon determination by a
disinterested majority of the Board of Directors or of a majority of any
disinterested committee or group or persons to whom the question may be referred
to by said Board, that the person did indeed act in good faith and in a manner
he or she reasonably believed to be in, or not adverse, to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
reasonably cause to believe that his or her conduct was legal.
<PAGE> 84
The foregoing right to indemnity shall not be exclusive of any other
rights to which such Director or officer may be entitled as a matter of law.
The foregoing right to indemnity shall also extend to the estate of any
deceased Director or officer with respect to any such claim, action, suit or
proceeding in which such Director or officer or his or her estate may become
involved by reason of his or her having been a Director or officer of the
Company, and subject to the same conditions outlined above.
Section IX, paragraph D of the Promotional Agent Agreement among the Company,
Manufacturers Securities Services, LLC, formerly NASL Financial Services, Inc.
("Manulife Securities") and Wood Logan Associates, Inc. (referred to therein as
"Promotional Agent") provides as follows:
a. Manulife Securities and the Company agree to indemnify and hold harmless
Promotional Agent, its officers, directors and employees against any and
all losses, claims, damages or liabilities to which they may become
subject under the Securities Act of 1933 ("1933 Act"), the 1934 Act or
other federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact or any omission
or alleged omission to state a material fact required to be stated or
necessary to make the statements made not misleading in any registration
statement for the Contracts filed pursuant to the 1933 Act or any
prospectus included as a part thereof, as from time to time amended and
supplemented, or any advertisement or sales literature approved in writing
by Manulife Securities or Security Life pursuant to Section VI, paragraph
B of this Agreement.
b. Promotional Agent agrees to indemnify and hold harmless Manulife
Securities and the Company, their officers, directors and employees
against any and all losses, claims, damages or liabilities to which they
may become subject under the 1933 Act, the 1934 Act or other federal or
state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon: (i) any oral or written
misrepresentation by Promotional Agent or its officers, directors,
employees or agents unless such misrepresentation is contained in any
registration statement for the Contracts or Fund shares, any prospectus
included as a part thereof, as from time to time amended and supplemented,
or any advertisement or sales literature approved in writing by Manulife
Securities pursuant to Section VI, paragraph B of this Agreement or, (ii)
the failure of Promotional Agent or its officers, directors, employees or
agents to comply with any applicable provisions of this Agreement.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
<PAGE> 85
The Company currently sells Venture Group Annuity, a flexible premium payment
deferred variable unallocated group annuity, to retirement plans that qualify
for special tax treatment under Section 401(a) of the Internal Revenue Code.
Sales of these securities are not required to be registered under the Securities
Act of 1933 (Section 3(a)(2) of this Act). Manulife Securities, a wholly owned
subsidiary of the Company is the principal underwriter of the contracts and Wood
Logan Associates, Inc., an affiliate of the Company, is the promotional agent.
There are no maximum or minimum purchase payments required to establish a
contract. The value of a contract will vary according to the investment
performance, charges and expenses of the subaccounts in which the contract is
invested. As of August 31, 1997, the total variable assets in the Venture Group
Annuity was $44,047,365.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1(a) Underwriting Agreement between North American Security Life
Insurance Company (the "Company") and Manulife Securities
Services, Inc. (Underwriter)1/
1(b) Promotional Agent Agreement between Manulife Securities
Services, Inc. (Underwriter), the Company and Wood Logan
Associates, Inc. (Promotional Agent) 2/
2 Not Applicable
3(i) Article of Incorporation of the Company 3/
3(i)(a) Amendment to Articles of Incorporation of the Company dated
March 28, 1997
3(ii) By-Laws of the Company 4/
3(ii)(a) Amended and Restated By-Laws of the Company
4(i) Form of Individual Single Payment Deferred Fixed Annuity
Non-Participating Contract - 10/
4(ii) Form of Group Single Payment Deferred Fixed Annuity Non-
Participating Contract - 10/
4(iii) Individual Retirement Annuity Endorsement - 10/
4(iv) ERISA Tax-Sheltered Annuity Endorsement - 10/
4(v) Tax-Sheltered Annuity Endorsement - 10/
4(vi) Section 401 Plans Endorsement - 10/
4(v) Name Change Endorsement - Filed Herewith
5 Opinion and Consent of James D. Gallagher, Esq. - Filed herewith
6 Not Applicable
7 Not Applicable
8 Not Applicable
9 Not Applicable
10(i) - Form of broker-dealer agreement between the Company, Manulife
Securities Services, Inc. (underwriter), Wood Logan
Associates, Inc. (Promotional Agent) and broker-dealers 5/
(10)(ii) - Reinsurance and Guaranteed Death Benefits Agreement between
NASL and Connecticut General Life Insurance Company 8/
(10)(iii) - Reinsurance Agreement between NASL and
</TABLE>
<PAGE> 86
<TABLE>
<S> <C>
PaineWebber Life Insurance Company 9/
(10)(iv) - Coinsurance Agreement between NASL and Peoples Security Life
Insurance Company - 11/
(10)(v) - Reinsurance and Accounts Receivable Agreements between NASL and
ITT Lyndon Life - 11/
(10)(vi) - Automatic Modified -Coinsurance Reinsurance Agreement between
NASL and Transamerica Occidental Life Insurance Company - 11/
(10)(vii) - Automatic Yearly Renewable Term Reinsurance Agreement between
NASL and Transamerica Occidental Life Insurance Company - 11/
(10)(viii) - Amendment No. 1 to the Variable Annuity Guaranteed Death
Benefit Reinsurance Agreement between NASL and Connecticut
General Life Insurance Company - 11/
11 Not Applicable
12 Not Applicable
13 Not Applicable
14 Not Applicable
15 Not Applicable
16 Not Applicable
17 Not Applicable
18 Not Applicable
19 Not Applicable
20 Not Applicable
21 The Company has the following wholly owned subsidiaries: Manulife
Securities Services, Inc. and First North American Life Assurance
Company
22 Not Applicable
23(i) Consent of Coopers & Lybrand L.L.P.- Filed Herewith
23 (ii) Consent of Ernst & Young, LLP - Filed Herewith
24 (i) Power of Attorney (Principal Financial and Accounting Officer of
the Company) 6/
24(ii) Power of Attorney (Directors of the Company) 7/
24(iii) Power of Attorney dated March 27, 1997
(Chairman of the Board) - Filed Herewith
24(iv) Power of Attorney (Vice President, Treasurer &
Chief Financial Officer) dated May 1, 1997 - Filed Herewith
24(v) Power of Attorney (Directors of the Company) dated May 1, 1997 -
Filed Herewith
25 Not Applicable
26 Not Applicable
27 Financial Data Schedule - Filed Herewith
28 Not Applicable
</TABLE>
<PAGE> 87
1/ Incorporated by reference to Exhibit (A)(3)(a) to Form S-6, file number
2-93435, filed September 24, 1984 on behalf of the NASL Variable Account of the
Company
2/ Incorporated by reference to Exhibit 3(ii) to Form N-4, file number 33-28455,
filed February 15, 1991 on behalf of the NASL Variable Account of the Company
3/ Incorporated by reference to Exhibit (A)(6) to Form S-6, file number 2-93435,
filed September 24, 1984 on behalf of the NASL Variable Account of the Company
4/ Incorporated by reference to Exhibit (b)(6)(ii) to Form N-4, file number
33-9960, filed November 4, 1986 on behalf of the NASL Variable Account of the
Company
5/ Incorporated by reference to Exhibit (b)(3)(iii) to pre-effective amendment
no. 1 to Form N-4, file number 33-9960, filed February 2, 1987 on behalf of the
NASL Variable Account of the Company
6/ Incorporated by reference to Exhibit (b)(14)(b) to Registration Statement on
Form N-4, file number 33-28455, filed April 2, 1993 on behalf of the NASL
Variable Account of the Company
7/ Incorporated by reference to Exhibit (7)(a) to Registration Statement on Form
S-6, file number 33-92466, filed May 18, 1995 on behalf of the NASL Variable
Life Account of the Company
8/ Incorporated by reference to Exhibit (b)(7)(i) to Registration Statement on
Form N-4, file number 33-76162, filed March 1, 1996.
9/ Incorporated by reference to Exhibit (b)(7)(iii) to Registration Statement on
Form N-4, file number 33-76162, filed March 1, 1996.
10/ Incorporated by reference to Exhibit 4 to Registration Statement on Form
S-1, file number 333-6011, filed June 14, 1996.
11/ Incorporated by reference to Exhibit 5 to Registration Statement on Form
S-1, file number 333-6011, filed January 9, 1997.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule I - Summary of Investments
Schedule II - Supplementary Insurance Information
Schedule IV - Reinsurance
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
<PAGE> 88
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
<PAGE> 89
Report of Independent Auditors:
We have audited the financial statements of North American Security Life
Insurance Company as of December 31, 1996 and for the year then ended, and have
issued our report thereon dated February 25, 1997 (included elsewhere in this
Registration Statement). Our audit also included the financial statement
schedules listed in Item 16(b) of this Registration Statement. These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audit.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Boston, Massachusetts
February 25, 1997
Ernst & Young LLP
<PAGE> 90
<TABLE>
<CAPTION>
North American Security Life Insurance Company
Schedule I - Summary of Investments
Other Than Investments In Related Parties
December 31, 1996
- --------------------------------------- -------------------------- ------------------------- -------------------------
Amount Shown in the
Type of Investment Cost Value Balance Sheet
- --------------------------------------- -------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
Fixed maturities:
United States Government $ 6,916,217 $ 7,032,998 $ 6,916,217
Corporate debt securities 6,008,531 5,993,940 6,008,531
Mortgage-backed securities 923,568 938,181 923,568
------------ -------------- -----------
Total fixed maturities 13,848,316 $13,965,119 13,848,316
===========
Common stock of affiliates* - 30,305,498
Real estate** 4,342,551 2,268,120
Policy loans 454,026 454,026
Short-term investments 7,321,515 7,321,515
------------ ------------
Total investments $25,966,408 $54,197,475
=========== ===========
- --------------------------------------- -------------------------- ------------------------- -------------------------
</TABLE>
* 100% of the investments in common stock is with related parties.
** Real estate is carried at the lower of cost or fair value in the Balance
Sheet.
<PAGE> 91
<TABLE>
<CAPTION>
North American Security Life Insurance Company
Schedule III - Supplementary Insurance Information
(000's)
- ----------------------------------------------------------------------------------------------------
December 31,
- ----------------------------------------------------------------------------------------------------
Future Policy
Benefits, Losses, Other Policy
Deferred Policy Claims and Loss Unearned Premiums Claims and
Segment Acquisition Cost Expenses Benefits Payable
- --------------------- ------------------- ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
1996
Life Insurance $0 $ 0 $0 $ 0
Annuity 0 3,675 0 1,581
--- ------- --- ------
Total $0 $3,675 $0 $1,581
== ====== == ======
1995
Life Insurance 0 0 0 0
Annuity 0 1,932 0 2,143
--- ------ --- ------
Total $0 $1,932 $0 $2,143
== ====== == ======
1994
Life Insurance 0 0 0 0
Annuity 0 519,093 0 1,964
--- -------- --- ------
Total $0 $519,093 $0 $1,964
== ======== == ======
- --------------------- ------------------- ------------------- ------------------ -------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
- ------------------------------------------------------------------------------------------------------------------------
Benefits, Claims Amortization of
Losses and Deferred Policy
Premium Revenue Net Investment Settlement Acquisition Costs Other Operating
Segment Income Expenses Expenses
- --------------------- ------------------- ------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
1996
Life Insurance $ 10,381 $ 68 $ 6 $0 $ 85
Annuity 1,016,993 5,104 381,759 0 27,502
---------- ------ -------- -- -------
Total $1,027,374 $5,172 $381,765 $0 $27,587
========== ====== ======== == =======
1995
Life Insurance $ 75 $ 0 $ 0 $0 $ 115
Annuity 991,477 35,910 269,689 0 22,758
-------- ------- -------- -- -------
Total $991,552 $35,910 $269,689 $0 $22,873
======== ======= ======== == =======
1994
Life Insurance $ 0 $ 0 $ 0 $0 $ 0
Annuity 1,139,953 30,560 206,710 0 19,254
---------- ------- -------- -- --------
Total $1,139,953 $30,560 $206,710 $0 $19,254
========== ======= ======== == =======
- --------------------- ------------------- ------------------- ------------------ ------------------- -------------------
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
North American Security Life Insurance Company
Schedule IV - Reinsurance
Years ended December 31, 1996, 1995 and 1994
(000's)
- ---------------------------------------- ------------------ ------------------ ---------------- ---------------- ------------------
Assumed from Percentage of
Ceded to Other Other Companies Amount Assumed
Gross Amount Companies Net Amount to Net
- ---------------------------------------- ------------------ ------------------ ---------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
1996
Life insurance inforce $45,597 $23,932 $0 $21,665 0%
======= ======= == ======= ==
Premiums:
Life Insurance $ 18,420 $ 8,039 $0 $ 10,381 0%
Annuity Considerations 1,024 1,024 0 0 0
Deposit-type funds 1,027,752 12,704 0 1,015,048 0
Supplementary contracts 1,945 0 0 1,945 0
-------------- ------------ --- -------------- --
Total $1,049,141 $21,767 $0 $1,027,374 0%
========== ======= == ========== ==
1995
Life insurance inforce $245 $123 $0 $122 0%
==== ==== == ==== ==
Premiums:
Life Insurance $ 150 $ 75 $0 $ 75 0%
Annuity Considerations 1,421 741 0 680 0
Deposit-type funds 1,088,518 100,836 0 987,682 0
Supplementary contracts 3,115 0 0 3,115 0
------------- -------------- --- ----------- --
Total $1,093,204 $101,652 $0 $991,552 0%
========== ======== == ======== ==
1994
Life insurance inforce $0 $0 $0 $0 0%
== == == == ==
Premiums:
Life Insurance $ 0 $ 0 0 $ 0 0%
Annuity Considerations 887 0 0 887 0
Deposit-type funds 1,281,582 143,980 0 1,137,602 0
Supplementary contracts 1,464 0 0 1,464 0
-------------- -------------- --- -------------- --
Total $1,283,933 $143,980 $0 $1,139,953 0%
========== ======== == ========== ==
- ---------------------------------------- ------------------ ------------------ ---------------- ---------------- ------------------
</TABLE>
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has caused this amendment to its Registration Statement to be signed
on its behalf, by the undersigned, thereunto duly authorized in the City of
Boston and Commonwealth of Massachusetts on this 2nd day of October, 1997.
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
(Registrant)
By: /s/ John D. DesPrez III,
------------------------------
John D. DesPrez III, President
Attest:
/s/ James D. Gallagher
- -----------------------------
James D. Gallagher, Secretary
<PAGE> 94
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities with the Registrant and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John D. DesPrez III Director and President October 2, 1997
- ----------------------- (Principal Executive ---------------
John D. DesPrez III Officer) (Date)
*______________________ Director October 2, 1997
Peter S. Hutchison ---------------
(Date)
*______________________ Director and Chairman October 2, 1997
John D. Richardson of the Board ---------------
(Date)
/s/ Richard C. Hirtle Vice President and October 2, 1997
- ----------------------- Treasurer (Principal ---------------
Richard C. Hirtle Financial and Accounting (Date)
Officer)
*By: /s/ James D. Gallagher October 2, 1997
---------------------- ---------------
James D. Gallagher (Date)
Attorney-in-Fact
Pursuant to Powers
of Attorney
</TABLE>
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
3(i)(a) Amendment to Articles of Incorporation of the
Company dated March 28, 1997
3(ii)(a) Amended and Restated By-Laws of the Company
4(v) Name Change Endorsement
5 Opinion and Consent of James D. Gallagher, Esq.
23(i) Consent of Coopers & Lybrand, L.L.P.
23(ii) Consent of Ernst & Young, LLP
24(iii) Power of Attorney (John D. Richardson)
24(iv) Power of Attorney (Principal Financial and
Accounting Officer of the Company
24(v) Power of Attorney (Directors of the Company)
27 Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 3(i)(a)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
North American Security Life Insurance Company (the "Company"), duly
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that:
1. That on the 28th day of March 1997, the Board of Directors of the
Company duly adopted by its written consent, pursuant to Section 141(f) of the
General Corporation Law of the State of Delaware, a resolution setting forth a
proposed amendment to the Certificate of Incorporation of the Company as
follows:
RESOLVED, that Article One of the Certificate of Incorporation of the
Company be amended by changing the name of the Company from North
American Security Life Insurance Company to The Manufacturers Life
Insurance Company of North America, and it is
FURTHER RESOLVED, that the change of the Company's name be recommended
to the sole stockholder of the Company, and it is
FURTHER RESOLVED, that any one of the President or the Vice President,
Secretary and General Counsel are hereby authorized to do all things and
take all actions to effect the change of name, and it is
FURTHER RESOLVED, that the change of the Company's name will be
effective upon approval of the Delaware Department of Insurance and any
other regulatory agencies needed to approve such change.
2. That on the 28th day of March 1997, pursuant to the resolution of
the Board of Directors, the sole stockholder of the Company duly adopted by its
written consent, pursuant to Section 228 of the General Corporation Law of the
State of Delaware, a resolution in favor of the amendment.
<PAGE> 2
3. That the Certificate of Incorporation of the Company is hereby
amended by deleting Article FIRST in its entirety and inserting the following in
lieu thereof:
FIRST: The name of the Company is:
The Manufacturers Life Insurance Company of North America.
4. That the foregoing amendment has been duly adopted in accordance
with the provisions of Sections 242 and 228 (by the written consent of the sole
stockholder) of the General Corporation Law of the State of Delaware.
5. That the foregoing amendment shall be effective at 12:01 a.m.
Eastern Standard Time on October 1, 1997.
IN WITNESS WHEREOF, North American Security Life Insurance Company has
caused this Certificate to be executed by James D. Gallagher, Vice President,
Secretary and General Counsel.
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
By /s/ James D. Gallagher
-------------------------------------------
James D. Gallagher
Vice President, Secretary & General Counsel
<PAGE> 1
EXHIBIT 3(ii)(a)
AMENDED AND RESTATED
BY-LAWS
of
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA
ARTICLE I
MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders shall be held each year at such time
and on such date as the Board, the Chairman or the President may from time to
time determine.
Written notice of the Annual Meeting shall be given at least ten days
prior to the date of such meeting to each stockholder whose name shall be
registered as such upon the books of the Company, and such notice shall state
the place, date and hour of the Meeting.
Special meetings of the stockholders may be called on the order of the
Chairman, the President or a majority of the Board of Directors. Such call shall
be made by a written notice given at least ten days prior to the date of such
meeting to each stockholder whose name shall be registered as such upon the
books of the Company, and such call shall state the place, date and hour of the
meeting, and the general nature of the business proposed to be transacted
thereat; and no other business shall be transacted at such meeting.
Annual and special meetings of stockholders shall be held at such places,
within or without the United States, as may from time to time be designated by
the Board of Directors and stated in the notice of meeting.
The attendance in person or by proxy of a majority in interest of all
stockholders entitled to vote at any meeting, whether annual or special, shall
be necessary to constitute a quorum at such meeting, and each stockholder shall
be entitled, either in person or by proxy at any such meeting, to as many votes
as he owns shares of stock in the Company, upon all matters that come properly
before the meeting.
Unless otherwise provided in the certificate of incorporation, any action
required to be taken at any annual or special meeting of stockholders of the
Company, or any action which may be taken at any annual or special meeting of
such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing setting forth the action so taken, shall
be signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Whenever, under the provision of these By-Laws, notice is required to be
given to any stockholder, such provision shall not be construed to require
personal notice; but the notice may be given by facsimile or by mail, to such
stockholder, at such address as he or she may have registered with the Secretary
of the Company or, in default of such registered address, then at his or her
last known place of residence or business. Such notice shall be deemed to be
given at the time when the same shall be sent via facsimile or mail.
1
<PAGE> 2
Any stockholder may, at any time, waive any notice required to be given
under the By-Laws or otherwise, either before or after the meeting or action
with respect to which notice is waived.
ARTICLE II
ELECTION OF DIRECTORS
The stockholders at their annual meeting shall elect such number of
directors, not less than three nor more than ten, as shall be determined by
resolution of the Board of Directors and specified in the notice of meeting, and
such Directors shall hold office until the next annual meeting of the
stockholders and until others are duly chosen and qualified in their stead.
To be eligible for election as a Director of the Company, a person must be
less than 72 years of age and of sound mental health. Directors need not be
stockholders.
If election of Directors is not held at the annual meeting of
stockholders, the Directors shall cause the election to be held at a special
meeting of stockholders as soon thereafter as conveniently may be.
The number of Directors may be increased at any time and from time to time
by amendment of the By-Laws or by resolution of the Board of Directors. The
number of Directors may be decreased at any time and from time to time (but
never to a smaller number than three) by amendment of the By-Laws or by
resolution of the Directors. Any directorship to be filled by reason of an
increase in the number of Directors shall be filled by election at any annual or
at a special meeting of stockholders called for that purpose or by resolution of
the Board of Directors. A Director elected by the Board to fill any such
directorship shall hold office until the next succeeding annual meeting of
stockholders and until his or her successor has been elected and qualified.
Any vacancy occurring through death, resignation, disqualification or
otherwise, among the Directors of the Company, may be filled by the vote of a
majority of the Directors in office. A Director elected by the Board to fill any
such directorship shall hold office until the next succeeding annual meeting of
stockholders and until his or her successor has been elected and qualified.
A Director of the Company may resign his or her office at any time by
delivering his or her resignation in writing to the Company, and the acceptance
of such resignation, unless required by the terms thereof, shall not be
necessary to make such resignation effective.
Any or all of the Directors may be removed by the stockholders for cause
or without cause.
ARTICLE III
POWERS OF THE DIRECTORS
The Board of Directors shall manage the business and affairs of the
Company and, in addition to the powers and authority expressly conferred upon
them by the By-Laws, may exercise all such powers and do all such
2
<PAGE> 3
things as may be exercised or done by the Company subject, nevertheless, to the
provisions of the applicable statutes, of the company's Articles of
Incorporation, and of the By-Laws.
ARTICLE IV
MEETINGS OF DIRECTORS
The Board of Directors shall hold meetings at such places, within or
without the United States, and at such time and on such date as the Chairman,
the President or any two Directors may request. The Secretary shall give notice
of each meeting of the Board by mailing the same at least five days before the
meeting or by telephoning or faxing the same at least one day before the meeting
to each Director.
Whenever, under the provision of these By-Laws, notice is required to be
given to any Director, such provision shall not be construed to require personal
notice; but the notice may be given by facsimile or by mail, to such Director,
at such address as he or she may have registered with the Secretary of the
Company or, in default of such registered address, then at his or her last known
place of residence or business. Such notice shall be deemed to be given at the
time when the same shall be sent via facsimile or mail.
Any Director may at any time waive any notice required to be given under
the By-Laws or otherwise, either before or after the meeting or action with
respect to which notice is waived. Attendance of a Director at a meeting shall
constitute waiver of notice of the meeting, except when the Director attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
The attendance of a majority of the Board of Directors shall be necessary
to constitute a quorum for the transaction of business; but a smaller number may
meet and adjourn. When a vacancy or vacancies prevents a majority of the whole
Board constituting a quorum, then a majority of the Directors in office shall
constitute a quorum, provided that such majority shall constitute at least
one-third (1/3) of the whole Board.
Any Director may participate in a meeting of the Board by means of a
conference telephone or similar communications equipment by means of which all
Directors participating in the meeting can hear each other, and such
participation in a meeting of the Board shall constitute presence in person at
such meeting.
Unless otherwise restricted by the certificate of incorporation or these
By-Laws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting,
if all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
ARTICLE V
STANDING COMMITTEES
Section 1. The Board may appoint a Investment Committee. If appointed, the
Investment Committee shall consist of two or more Directors, to be appointed
annually by the Board of Directors who shall appoint one of the members of such
Committee as Chairman.
3
<PAGE> 4
If appointed, the Investment Committee shall have authority to direct and
control the investment of funds and the purchase and sale of securities by the
Company. A majority of the members of such Committee shall constitute a quorum.
The Investment Committee, or a quorum thereof, may act from time to time on the
basis of written approval without a formal meeting. Regular meetings of the
Committee shall be held quarterly at dates set by vote of the Committee. Special
meetings may be called at any time at the request of any member.
Section 2. The Board of Directors may appoint other committees which shall
have such powers and perform such duties as from time to time may be prescribed
by a majority of the Board. The Board shall have the power at any time to
establish, fill vacancies in, to change the membership of, or to dissolve any
committee. Action taken by any committee shall be reported at the meeting of the
Board next succeeding such action.
ARTICLE VI
OFFICERS
Section 1. Executive Officers. The Board of Directors will elect or
appoint a President, one or more Vice Presidents, a Treasurer and a Secretary.
The Board of Directors may also elect a Chairman of the Board, a Vice Chairman
and may designate Vice Presidents as Executive or Senior Vice Presidents, and
may elect from time to time such other officers as it considers necessary, each
of whom shall hold office for such period, have such authority, and perform such
duties as the Board may from time to time determine. Any person may hold two but
no more than two offices, provided the same individual shall not hold the office
of Treasurer and Controller. The Chairman, the Vice Chairman, if any, and the
President shall be chosen from among the Directors.
Section 2. Administrative Officers. The administrative officers of the
Company shall be a Chief Actuary, a Controller and a General Counsel, who shall
be appointed by the President and hold office for a period of time as prescribed
by the President. Additional administrative officers may be designated and
appointed by the President and the authorities and duties of all administrative
officers shall be generally designated by the President.
Section 3. Term of Office. The executive officers shall be chosen annually
by the Board of Directors at the first meeting of the Board following the
stockholders' annual meeting, or as soon thereafter as is conveniently possible.
Additional executive officers may be elected from time to time. Unless otherwise
provided in the resolution of election or appointment, the term of office of all
executive officers shall be for one year and until their respective successors
are duly chosen and qualified, but any executive officer may be removed, with or
without cause, at any time by the Board of Directors.
Section 4. Salaries. The salaries of the executive officers of the Company
shall be fixed by the Board of Directors.
Section 5. Duties and Responsibilities.
(a) The Chairman shall be jointly responsible with the President for
the establishment of corporate policies. Except where, by law, the signature of
the President is required, the Chairman shall possess the same power as the
President to sign all certificates, contracts and other instruments of the
Company which may be authorized by the Board of Directors.
(b) The Vice Chairman, if any, shall have such powers and perform
such duties as the Chairman may delegate to him or her.
4
<PAGE> 5
(c) The President shall have such powers and perform such duties as
the Board of Directors and the Chairman may delegate to him or her. In the
absence of the Chairman, the President shall exercise the functions and duties
of the Chairman.
(d) Each Vice President shall have such powers and perform such
duties as the Board of Directors, the Chairman or the President may from time to
time prescribe. The Vice Presidents in the order of priority designated by the
Chairman, the President or the Board of Directors, shall exercise the functions
of the President in his or her absence. If no priority is designated, then by
order of election.
(e) The Treasurer shall have the custody and care of all the funds
and securities of the Company, and shall deposit all funds to the credit of the
Company in such institution or institutions as the Board of Directors may
designate; he or she or an Assistant Treasurer or such other officer or officers
or appointee or appointees as may be authorized by the Board of Directors shall
endorse all instruments or documents requiring endorsement for or on behalf of
the Company; he or she shall perform all acts incident to the position of
Treasurer, subject to the control of the Board; he or she shall have such other
powers and perform such other duties as the Board of Directors, the Chairman or
the President may from time to time prescribe.
(f) The Secretary shall keep the minutes of all meetings of the
Board of Directors and of the Stockholders and shall attend to the giving of
proper notices to Directors and stockholders; he or she or an Assistant
Secretary or such other officer or officers or appointee or appointees as
authorized by the Board of Directors may sign, with the President, all
authorized contracts, instruments or documents in the name of the Company; he or
she shall be the custodian of the seal of the Company and shall attest such seal
when required; he or she shall perform all the duties incident to the office of
Secretary, subject to the control of the Board of Directors; he or she shall
have custody of the stock registers and transfer books of the Company; he or she
shall have such other powers and perform such other duties as the Board of
Directors, the Chairman or the President may from time to time prescribe or as
may be prescribed by these By-Laws.
(g) The Chairman, or the Vice Chairman, if any, or the President or
any Vice President, jointly with the Secretary, shall have power and is hereby
authorized to do all acts and things necessary to comply with the laws of any
state, territory, foreign government or other jurisdiction to secure the right
of the Company to do or continue the business of insurance in such jurisdiction,
and to act in the name of the Company to appoint from time to time such person
or persons as may be necessary and under such terms and conditions as may be
necessary, as the true and lawful attorney or attorneys of the Company in and
for such jurisdiction upon whom all lawful processes of any description in any
suit, action or proceeding against the Company may be served in like manner and
with the same effect as if served upon the Company and as if the Company were
organized under the laws of the jurisdiction for which such attorney or
attorneys are appointed; and the Company hereby empowers and authorizes said
officers for it and its name to agree that any lawful process against the
Company which may be served on its attorneys so appointed shall be of the same
legal force, effect and validity as if served on the Company.
(h) In case of the absence or disability of any officer of the
Company and of any persons hereby authorized to act in his or her place during
such period of absence or disability, the Board of Directors may from time to
time delegate the powers and duties of such officer to any other officer, or any
Director, or any other person whom it may select.
Section 6. Bonding of Officers. All officers shall be bonded under a
blanket bond, upon undertaking the duties of their respective offices, with a
surety company authorized to transact business in the state of Delaware, as
surety, and in such sum as may be specified by resolution of the Board of
Directors, conditioned for the faithful
5
<PAGE> 6
discharge of their duties. The Board of Directors may at any time, by
resolution, increase or decrease the amount of bond as hereinabove provided.
Section 7. Deaths, Resignations and Vacancies. An officer of the Company
may resign his or her office at any time by delivering his or her resignation in
writing to the Company, and the acceptance of such resignation, unless required
by the terms thereof, shall not be necessary to make such resignation effective.
Any vacancy occurring through death, resignation, disqualification or
otherwise, among the Executive Officers of the Company, may be filled by the
vote of a majority of the Directors in office. Any person so chosen shall hold
office until the annual election of executive officers at the first meeting of
the Board of Directors following the stockholders' annual meeting, or as soon
thereafter as is conveniently possible.
ARTICLE VII
OFFICES
The Company may have offices and transact business at such other place
than its registered office in the State of Delaware as from time to time the
business of the Company may require.
ARTICLE VIII
INVESTMENTS AND MONEYS
Investment of the funds of the Company and the purchase and sale of
securities by the Company shall be made only as authorized or approved by the
Board of Directors or the Investment Committee or by some other committee
appointed by the Board of Directors and charged with the duty of supervising or
making such investments, purchases or sales. All investments requiring
registration shall be registered in the name of the Company except in such cases
as the Board of Directors or the Investment Committee may specially direct
otherwise.
Securities representing the invested funds of the Company shall be placed
for safekeeping in safe deposit vaults in the name of the Company, or pursuant
to a custodian account, in such Banks, Trust or Safe Deposit Companies as shall
be approved by the Board of Directors. Access to the vaults shall be in
accordance with procedures approved by resolution of the Board of Directors and
such resolution shall be effective upon a copy thereof being provided to the
Bank, Trust or Safe Deposit Company in which the securities are held. In the
event that the Board of Directors shall determine to establish a custodian
account with a Bank or Trust Company and shall provide that all or any part of
the securities now or hereafter representing the invested funds of the Company
shall be delivered to such Bank or Trust Company approved by the Board of
Directors; then, and in that event, such Bank or Trust Company shall hold such
securities so delivered in the custodian account in accordance with the
procedure and under the authority of the resolution approved by the Board of
Directors.
Any two of the following: the Chairman, Vice Chairman, if any, President,
or any Vice President acting jointly, or any one of them acting jointly with any
Vice President or the Secretary or the Treasurer or an Assistant Secretary or an
Assistant Treasurer is authorized and empowered to sell, assign, exchange and
transfer any and all
6
<PAGE> 7
shares of stock, bonds and other securities owned by or standing in the name of
the Company, and to make, execute and deliver in the name and as the act of the
Company under its corporate seal any and all instruments in writing necessary or
proper to carry such sales, assignments, exchanges and transfers into effect,
but the Board of Directors or the Investment Committee may from time to time
adopt resolutions authorizing other methods for accomplishing same.
The Chairman, or the Vice Chairman, if any, or the President or any Vice
President or the Treasurer shall have authority to vote in person or by proxy
any of the stock of any other company in which the Company may hold and to
execute any and all consents or other documents relating to such stocks.
Moneys received by the Company may be deposited to its credit in such
Trust Companies or Banks as the Board of Directors may designate and checks
thereon shall be signed by two officers, one of whom shall be the Chairman or
the Vice Chairman, if any, or the President or Vice President; but the Board of
Directors may from time to time adopt resolutions authorizing other methods for
drawing checks, including the use of facsimile signatures, and such resolutions
shall be effective upon a copy thereof being provided to the Trust Company or
Bank upon which the check is drawn.
ARTICLE IX
FISCAL YEAR
Except as from time to time otherwise provided by the Board of Directors,
the fiscal year of the Company shall be the calendar year.
ARTICLE X
DIVIDENDS
Dividends may be declared and paid at such times as may be determined by
the Board of Directors.
Before declaring payment of any dividends or making any other distribution
of the surplus or profits of the Company, the Directors of the Company may,
according to their discretion, set aside such sum or sums as they think proper
as a reserve fund to meet contingencies or to meet the statutory requirements of
any State or country in which they may be transacting business, or for
equalizing dividends, or for any other purpose which they shall think conducive
to the interest of the Company.
ARTICLE XI
STOCK CERTIFICATES, TRANSFER AND RECORD DATES
All certificates of stock of the Company shall be signed by the Chairman
or the Vice Chairman, if any, or the President or a Vice President and by the
Secretary or an Assistant Secretary.
7
<PAGE> 8
ARTICLE XII
EMERGENCY AUTHORITY
The Board of Directors, by resolution adopted by a majority of the whole
Board, may make advance provision for the continuity and authority of the
Company's management in the event of a major catastrophe or force majeure
resulting in the loss or unavailability of members of the Board of Directors,
whether by death, incapacity, isolation or otherwise, or in loss or
unavailability of officers of the Company, and, in the event of such major
catastrophe, the terms of any such resolution shall have the same effect as if
included in these By-Laws and shall supersede the terms of these By-Laws to the
extent that they may be inconsistent therewith.
ARTICLE XIII
COMPENSATION OF DIRECTORS, ETC.
The Directors shall receive such compensation for their services as
Directors as may be prescribed by the Board of Directors and shall be reimbursed
by the Company for ordinary and reasonable expenses incurred in the performance
of their duty.
Each member of the Investment or other committees, if any, and each
alternate member thereof, if any, shall receive such compensation as may be
deemed just and reasonable by a majority of the Board of Directors, which may be
a fee for attendance at meetings or on an annual basis. No officers of the
Company, however, shall be eligible to receive compensation for serving on any
of the foregoing committees.
ARTICLE XIV
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Director or officer, whether or not then in office, shall be
indemnified by the Company against all costs and expenses reasonably incurred by
or imposed upon him or her, including legal fees, in connection with or
resulting from any claim, action, suit or proceeding, whether civil, criminal or
administrative, in which he or she may become involved as a party or otherwise,
by reason of his or her being or having been a Director or officer of the
Company.
(1) Indemnity will not be granted to any Director or officer with respect
to any claim, action, suit or proceeding which shall be brought against such
Director or officer by or in the right of the Company, and
(2) Indemnification for amounts paid and expenses incurred in settling
such action, claim, suit or proceeding, will not be granted, until it shall be
determined by a disinterested majority of the Board of Directors or by a
majority of any disinterested committee or group of persons to whom the question
may be referred by the Board, that said Director or officer did
8
<PAGE> 9
indeed act in good faith and in a manner he or she reasonably believed to be in,
or not adverse, to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonably cause to believe that his or
her conduct was legal, and that the payment of such costs, expenses, penalties
or fines is in the interest of the Company, and not contrary to public policy or
other provisions of law.
The termination of any action, suit or proceeding by judgement, order,
settlement, conviction or upon a plea of nolo contendre or its equivalent, shall
not, of itself, create a presumption that the person did not act in good faith
and in a manner which he or she reasonably believed to be in, or not adverse, to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Indemnification shall be made by the corporation upon determination by a
disinterested majority of the Board of Directors or of a majority of any
disinterested committee or group or persons to whom the question may be referred
to by said Board, that the person did indeed act in good faith and in a manner
he or she reasonably believed to be in, or not adverse, to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
reasonably cause to believe that his or her conduct was legal.
The foregoing right to indemnity shall not be exclusive of any other
rights to which such Director or officer may be entitled as a matter of law.
The foregoing right to indemnity shall also extend to the estate of any
deceased Director or officer with respect to any such claim, action, suit or
proceeding in which such Director or officer or his or her estate may become
involved by reason of his or her having been a Director or officer of the
Company, and subject to the same conditions outlined above.
ARTICLE XV
BY-LAWS
These By-Laws or any articles thereof may be altered, amended or repealed
or further By-Laws may be adopted by a vote of a majority of the Directors then
in office at any regular or special meeting of the Board of Directors, or by
written consent, provided five days' notice in writing shall be given to each of
the Directors of the proposed alteration, amendment or repeal of an existing
By-Law or the proposed adoption of a new By-Law. Any By-Law made by the
Directors under this Article may be altered, amended or repealed by the
stockholders.
9
<PAGE> 1
EXHIBIT 4(v)
THE MANUFACTURERS LIFE INSURANCE COMPANY
OF NORTH AMERICA
116 Huntington Avenue
Boston, MA 02116
CHANGE OF NAME ENDORSEMENT
This endorsement attaches to and forms part of the Contract or Certificate to
which it is attached.
Whenever in the said Contract of Certificate the name North American
Security Life Insurance Company is used, the name The Manufacturers Life
Insurance Company of North America is hereby substituted.
If applicable, whenever in the said Contract or Certificate the name NASL
Series Trust is used, the name Manufacturers Investment Trust is hereby
substituted.
If applicable, whenever in the said Contract or Certificate the name NASL
Variable Account is used, the name The Manufacturers Life Insurance Company of
North America Separate Account A is hereby substituted.
If applicable, whenever in the said Contract or Certificate the name NASL
Variable Life Variable Account is used, the name The Manufacturers Life
Insurance Company of North America Separate Account B is hereby substituted.
If applicable, whenever in the said Contract or Certificate the name NASL
Group Variable Account is used, the name The Manufacturers Life Insurance
Company of North America Separate Account C is hereby substituted.
If applicable, whenever in the said Contract or Certificate the name NASL
Fixed Account is used, the name The Manufacturers Life Insurance Company of
North America Separate Account D is hereby substituted.
In Witness Whereof, the The Manufacturers Life Insurance Company of North
America has, by its President, executed this Change of Name Endorsement as of
the 1st day of October, 1997.
By:
/s/ John D. Desprez III
President
<PAGE> 1
EXHIBIT 5
The Manufacturers Life Insurance
Company of North America
116 Huntington Avenue
Boston, MA 02116
October 1, 1997
To whom it may concern,
I consent to the reference to my name under the caption "Legal Matters" in the
prospectus contained in Post-Effective Amendment No. 1 to the Registration
Statement on Form S-1 of The Manufacturers Life Insurance Company of North
America, File No. 333-6011, to be filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933.
Very truly yours,
/s/ James D. Gallagher
James D. Gallagher
Vice President, Secretary
and General Counsel
<PAGE> 1
EXHIBIT 23(i)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 1 to this
Registration Statement under the Securities Act of 1933 on Form S-1 (File No.
333-6011) in Part II of the Registration Statement of (i) our report dated
February 23, 1996, except for the information in Note 1 - "Basis of
Presentation," for which the date is February 25, 1997, on our audit of the
financial statements of North American Security Life Insurance Company and (ii)
our report dated February 23, 1996, on our audit of the financial statements of
NASL Variable Account. We also consent to the reference to our firm under the
caption "Independent Auditors."
Boston, Massachusetts
October 7, 1997
<PAGE> 1
EXHIBIT 23(ii)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our reports dated February 25, 1997, included in
Post-Effective Amendment No. 1 to the Registration Statement (Form S-1
No. 333-6011) of The Manufacturers Life Insurance Company of North America
(formerly North American Security Life Insurance Company).
Boston, Massachusetts
October 7, 1997
Ernst & Young LLP
<PAGE> 1
EXHIBIT 24(iii)
NORTH AMERICAN SECURITY LIFE INSURANCE COMPANY
POWER OF ATTORNEY
I, John D. Richardson, Director of North American Security Life
Insurance Company (the "Company") do hereby constitute and appoint James. D.
Gallagher, Richard C. Hirtle, John G. Vyrsen, Hugh McHaffie and James Boyle, or
any one of them, my true and lawful attorneys to sign or execute (i)
registration statements and reports and other filings to be filed with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended (the "1933 Act") and/or the Investment Company Act of 1940, as amended
(the "1940 Act") and (ii) reports and other filings to be filed with the SEC (or
any other regulatory entity) pursuant to the Securities Exchange Act of 1934
(the "1934 Act") and to do any and all acts and things and to sign or execute
any and all instruments for me, in my name, in the capacities indicated below,
which said attorney, may deem necessary or advisable to enable the Company to
comply with the 1933 Act, the 1940 Act and the 1934 Act, and any rules,
regulations and requirements of the SEC, in connection with such registration
statements, reports and filings made under the 1933 Act, the 1940 Act and the
1934 Act, including specifically, but without limitation, power and authority to
sign or execute for me, in my name, and in the capacities indicated below, (i)
any and all amendments (including post-effective amendments) to such
registration statements and (ii) Form 10-Ks and Form 10-Qs filed under the 1934
Act; and I do hereby ratify and confirm all that the said attorneys, or any of
them, shall do or cause to be done by virtue of this power of attorney.
Dated as of this 27th day of March, 1997.
Signature Title
- --------- -----
/s/ JOHN D. RICHARDSON Director
- ----------------------
John D. Richardson
<PAGE> 1
EXHIBIT 24(iv)
POWER OF ATTORNEY
I, Richard C. Hirtle, the Vice President, Treasurer & Chief Financial Officer of
North American Security Life Insurance Company (the "Company"), do hereby
constitute and appoint John D. Richardson, John D. DesPrez III, James D.
Gallagher and John G. Vrysen, or any one of them, my true and lawful attorneys
to execute for me and in my name, in the capacities indicated below, reports and
other filings to be filed with the Securities and Exchange Commission (or any
other regulatory entity) pursuant to the Securities Exchange Act of 1934 (the
"1934 Act") including, without limitation, Form 10-Ks and Forms 10-Qs and
further to do any and all acts and things and to execute any and all reports,
documents and instruments for me and in my name, in the capacities indicated
below, which said attorneys may deem necessary or advisable to enable the
Company to comply with the 1934 Act and any rules, regulations, and requirements
thereunder and I do hereby ratify and confirm all that said attorneys, or any
one of them, shall do or cause to be done by virtue of this power of attorney.
Executed this 1ST day of MAY, 1997.
/s/ Richard C. Hirtle
- ---------------------------------------------------
Richard C. Hirtle
Vice President, Treasurer & Chief Financial Officer
<PAGE> 1
EXHIBIT 24(v)
POWER OF ATTORNEY
We, the undersigned Directors of North American Security Life Insurance Company
(the "Company"), do hereby constitute and appoint John D. Richardson, John D.
DesPrez III, James D. Gallagher, John G. Vrysen and Richard C. Hirtle, or any
one of them, our true and lawful attorneys to execute for us and in our names in
the capacities indicated below reports and other filings to be filed with the
Securities and Exchange Commission (or any other regulatory entity) pursuant to
the Securities Exchange Act of 1934 (the "1934 Act") including, without
limitation, Form 10-Ks and Forms 10-Qs and further to do any and all acts and
things and to execute any and all reports, documents and instruments for us and
in our names in the capacities indicated below which said attorneys may deem
necessary or advisable to enable the Company to comply with the 1934 Act and any
rules, regulations, and requirements thereunder and we do hereby ratify and
confirm all that said attorneys, or any of them, shall do or cause to be done by
virtue of this power of attorney.
Executed below by the following persons in the capacities and on the dates
indicated:
/s/ John D. DesPrez III
- -----------------------
John D. DesPrez III
Director and President
Date: May 1, 1997
-----------
/s/ Peter S. Hutchison
- ----------------------
Peter S. Hutchison
Director
Date: May 1, 1997
-----------
/s/ John D. Richardson
- ----------------------
John D. Richardson
Director
Date: May 1, 1997
-----------
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THIS SCHEDULE CONTAINS SUMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS OF
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